Where's the oil money going?
Thursday February 14, 2008
Categories: Decline and fall
Has anything like this every existed in history? Dubai is an amazing, amazing place (I had the good fortune to go there once on business), but it strikes me as the national personification of Icarus. We'll see....
Filed Under: Dubai
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Rod Dreher is an editorial columnist for the Dallas Morning News, and author of "Crunchy Cons" (Crown Forum), a nonfiction book about conservatives, most of them religious, whose faith and political convictions sometimes put them at odds with mainstream conservatives. The views expressed in this blog are his own.
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"My father rode a camel. I drive a Rolls Royce. My son flies a jet. His son will ride a camel." - Saudi wisdom.
Now there's a Mystery Babylon a la Revelations.
won't global warming wipe it all out?
No matter how well they are constructed, I'd fear for my life if I stayed in one of those new "tallest in the world" buildings. Either there will be a catastrophic failure, or a terrorist attack. Living or working at the top would not be a comfortable prospect.
No matter how well they are constructed, I'd fear for my life if I stayed in one of those new "tallest in the world" buildings. Either there will be a catastrophic failure, or a terrorist attack.
Given my druthers, I'd've rebuilt the WTC same as before...and headquartered the new Department of Homeland Security (TSA in particular) on the upper floors. "Concentrate the mind", and all that.
Nice work if you can get it ...
Yet a fair amount of the projected sand dune paradise isn't built yet, right?
The currency reserves to finance that future (in dollars) are being diluted daily by the Fed's interest rate cuts. So what's a rich Arab to do to finance his dreams?
Switch the price of his oil assets to Euros, perhaps?
Wow! how far-sighted, right!
(see last weekend's posting on that very NIGHTMARISH scenario... patrickdeneen.blogspot.com/2008/02/paper-tiger.html )
"According to this story appearing today, the Secretary-General of OPEC now foresees a time within the decade when oil will no longer be priced in dollars. Like kicking a lumbering giant who has fallen down, this ill- (or well-) timed disclosure could send the U.S. economy further into a severe tailspin. If not immediately, it presages the end of the American Century and the final destruction of an already broken and broke U.S. economy."
Suddenly Ron Paul's appeals for a return to a gold standard doesn't seem so quackish anymore, right?
REVOLution!
My bad - 12.46 PM [anon] was me
As utterly amazing as the World Islands are (considering the price especially!), I can't help but consider that, used properly, all that money could probably cure world hunger, disease, and bring world peace if used properly.
God bless.
I don't get that whole petro dollar thing. If oil is priced in dollars you can't buy it using any other currency? The sellers won't do the math and tell you how much that will be in Yen or Euros?
That doesn't sound right but Deneen's article says that because oil is priced in dollars, that somehow makes it the 'reserve currency'. Isn't being the reserve currency more a function of political and economic stability?
**There are more construction workers in Dubai than there are actual citizens.**
I seem to recall a little movie called "Syriana" which showed the potentially disastrous outcome of such an Eloi/Morlock dynamic ...
The more interesting thing is that Dubai has very little oil and gas. Dubai is becoming the modern Switzerland--the neutral financial center and bank of the world.
Um, Joey, do you really believe that money can buy world peace?
At least they are investing the money into their economy. The Saudi royal family keeps all their money and their people are dirt poor. The construction projects should allow them to maintain income after oil.
Chris
What Steven Donegal said. Dubai's oil and gas reserves are miniscule compared to Saudi Arabia, which is why they are pushing so hard to establish other businesses, finance and tourism being their main goals.
The leaders in Dubai are smart enough to understand that terrorism is *very* bad for business, which is why it was so comically stupid a couple years ago when Congress shot down the bid of Dubai Ports World to take over management of many of our ports. Of course, I didn't hear any similar complaints when Dubai's sovereign wealth fund helped bail out Citibank last month.
Yeah, but who wants to fly half-way around the world to go to an amusement park where it's 130 degrees with no beer? I mean besides Mormons.
Switch the price of his oil assets to Euros, perhaps?
Euro vs. Dollar oil pricing:
www.econbrowser.com/archives/2006/01/strange_ideas_a.html
www.marginalrevolution.com/marginalrevolution/2006/01/the_proposed_ir.html
Also, regarding the dollar as reserve currency:
www.iie.com/publications/opeds/oped.cfm?ResearchID=853
Deneen's concern appears overwrought.
Suddenly Ron Paul's appeals for a return to a gold standard doesn't seem so quackish anymore
I'd critique the gold standard, but Jane Galt has already done so:
meganmcardle.theatlantic.com/archives/2007/09/theres_gold_in_them_thar_stand.php
To repeat: a falling dollar isn't necessarily a sign of the apocalypse. The dollar has been overvalued (*) for years now - just look at the US current-account deficit - and thus was slated to fall sooner or later. So long as the fall is gradual (discontinuities tend to panic markets), the main results would be a more competitive export sector and higher import prices - exactly what's required to cut the trade deficit. If we're lucky, we'll also get a few more manufacturing jobs, and a little more American frugality out of the deal.
(*) See here for why:
www.pc.gov.au/__data/assets/pdf_file/0007/5875/wolf.pdf
Gotta love Asian exchange-rate mercantilism.
There are more construction workers in Dubai than there are actual citizens.
IIRC, they're called "guest workers". See here:
www.slate.com/id/2124497/?nav=tap3
and here:
www.reason.com/news/show/123474.html
American advocates of guest-worker programs might want to take heed. Such programs may be convenient for (some) immigrants, but a large, lowly-paid, non-assimilated (and therefore perpetually alienated) underclass, doing jobs the rest of the country considers beneath them, could also provide good fodder for demagogues demanding the overthrow of the oppressor, and otherwise present a non-trivial internal security problem. Eloi vs. Morlock, anyone?
Yeah, but who wants to fly half-way around the world to go to an amusement park where it's 130 degrees with no beer? I mean besides Mormons.
Precisely. Stupid construction.
Re : MI's stream of URLs,
consider rephrasing the reserve/fiat arguments by replacing "gold" with petrochemical and "fiat" with global bankers:
The petrochemical standard cannot do what a privately-run global bankers currency can do, which is tailor the tokens for barter to the need-for-human-beings-to-exchange-things for tokens. The supply of petrochemicals grows--or not--depending on how much of the stuff is extracted. Demand also fluctuates for non-need-for-human beings-to-exchange-things reasons; petrochemicals have uses besides being tokens for barter, like reserves-for-private-Sovereign-Wealth-Funds and funding illiberalisms like SinoStatism and Islamofascism.
The lone advantage of a petrochemical standard--and it is a real advantage--is that it prevents governments from inflating the currency, since citizens gave the private bankers that privilege and, since bankers don't control the prices at oil pumps, OPEC does, the Fed cannot tailor the tokens for barter to the need-for-human-beings-to-exchange-things only private-Sovereign-Wealth-Funds can. The problem is, this is only moderately true. The government, after all, can always modify its petrochemical standard. Yes, you say, but it will pay a price in the markets, and this is true, but this is the same price it pays when it prints more global bankers currency. Such practices do not go unnoticed for long."
May I impiously add ... indeed not!
"The citizens wake up and learn they are not able to meet their 'need-for-human-beings-to-exchange-things', that they are in seignorage to a foreign 'token' petrochemical pimp, and with a government haemorraging deficits in defense of "liberating" said petrochemical pimps .
Urgh! When did promoting rampant illiberalism become an American value?
When did the dollar become the instrument of vulgar mercantilism?
The day it's "fiat" value was wrenched from the control of its citizens -- by their government, and given to the Fed.
oop! alarming attribution attrition - the original Megan McArdle post excerpted and edited above read thus:
"The gold standard cannot do what a well-run fiat currency can do, which is tailor the money supply to the economy's demand for money. The supply of gold grows--or not--depending on how much of the stuff is mined. Demand also fluctuates for non-economic reasons; gold has uses besides being money, like industrial components and jewelry.
The lone advantage of a gold standard--and it is a real advantage--is that it prevents governments from inflating the currency.(*) The problem is, this is only moderately true. The government, after all, can always modify its gold standard. Yes, you say, but it will pay a price in the markets, and this is true, but this is the same price it pays when it prints more fiat currency. Such practices do not go unnoticed for long. "
Not in original paragraph, but inserted by me at (*) "since citizens gave the private bankers that privilege and, since bankers don't control the prices at oil pumps, OPEC does, the Fed cannot tailor the 'tokens for barter' to the 'need-for-human-beings-to-exchange-things' only 'private-Sovereign-Wealth-Funds' can"
Pardone moi!
http://www.grapeshisha.com/alcohol-in-Dubai.html
They may be moslem but they aren't crazy. Reading the rules it doesn't sound like it is any harder to get a drink in Dubai then it was in some parts of the United States 40 years ago. Well except for the license. I hope the neo-prohibitionists over here don't read up on that.
I find clare krishan's responses largely indecipherable, but that could be my non-economist background speaking. Let me try again:
In theory, I have no problem with commodity-backed currency (gold or otherwise), since gold standards, currency boards, etc., strike me as a good way of preventing governments from inflating their currency to the point of worthlessness.
In reality, however, if the fallible men running the Gold Redemption Agency (i.e., whatever federal agency issues, and redeems, our gold-backed dollars after Ron Paul abolishes the Fed) become unwilling - for whatever reason - to honor their obligations under the gold standard (ala FDR & Nixon), then, gold standard notwithstanding, you're still going to end up with an inflated currency. Which is not so different from the Fed simply deciding "The heck with inflation, we're just going to start issuing dollars at will."
So here we come to the paradox: The gold standard basically amounts to a promise by the government not to inflate the currency. But if a government agency can be trusted honor _this_ promise, why can't it be trusted to not inflate a fiat currency? So in reality, while the gold standard may impose considerable costs (as Megan McArdle explains so ably), it brings little benefit to a country with a competent & trustworthy monetary authority.
When are we as a country going to take seriously the challenge of becoming energy independent? What's happening in Dubai is awesome, but it is the result of a massive shift of wealth that occurred since OPEC began to control the oil market in the early 1970s. All the money that went from American pockets to pay for overpriced Middle East oil is now in the hands of developers in Gulf countries like Dubai -- and in the hands of terrorists and other enemies of our country around the world. We have no one to blame but ourselves!!!
Why is Middle Eastern oil "overpriced"? There's a very tight market for oil, and that's what the market will bear. And as much as I would like for us to become energy independent, that's just not going to happen. T. Boone Pickens, the Texas oil tycoon, told me last year that there simply isn't any way to free ourselves from petroleum. It's a matter of physics.
MI
In theory, I have no problem with commodity-backed currency (gold or otherwise), since gold standards, currency boards, etc., strike me as a good way of preventing governments from inflating their currency to the point of worthlessness.
A gold standard is no solution for anything at all. It won't stop 'inflation', as is trivial to prove with math:
1) Gold cost $35 an ounce when we uncoupled from it in 1968. (We'd actually gone off the standard earlier, as in you couldn't exchange for gold, for reasons that become clear if you keep reading)
2) There are about $750 billion in use right now, aka, the M0 money supply. That's actual printed currency.
3) So, if we'd kept on the gold standard, at $35 an ounce, at this point we'd need 3.75 trillion worth of gold to back our dollars.
4) Which is about 131,250,000,000,000 ounces of gold or 4,082,426,127 tonnes.
5) Only 145,000 tonnes of gold has ever been mined in the history of mankind.
6) To actually fit our economy within the amount of gold that actually exist, each ounce of gold would now have to be valued at $28,154.
7) ...although we actually have only about 8,000 tonnes of gold, and only 25,000 tonnes of gold are held as bullion anywhere instead of in use, so even if we could buy all gold bullion, each ounce of gold would be somewhere around $200,000.
The current price of gold, for reference, is about $950 an ounce, or about $30,542,500 a tonne.
As the economy grows, the money supply has to grow, and if it can't grow by printing more money, it grows by devaluing what already exists, and if it can't do that, the economy does not grow.
Using money based on actual traded gold, or in some manner that is non-devaluable like letting private banks hold gold and issue gold certs, would be like attempting to grow an oak tree in a Altoids box. The economy will not be able to grow at all.
Making it based on printed money that has to be backed by gold, but can be re-valued by the government, would mean where we'd have to continually officially devalue the currency. Today, you've got paper saying you have 100 grams of gold in your wallet, tomorrow, 97. Having 'official' large-jump inflation does not seem to be preferable to slow inflation, it actually seems like it would be very disruptive.
Now, we could peg the price to gold easily, without have enough to back every dollar in gold, but that doesn't appear to accomplish anything except make the US dollar vary randomly in relation to the price of gold. That's still fiat money, which is evil according to the 'gold standard' ranters.
No, inflation is not some evil thing that showed up because the government is irresponsible. Inflation deliberately exists, at a specific amount, on purpose, and we could stop it or reverse it anytime we want by printing no money or even destroying it, or changing M1 or M2 in other ways.
If people want less inflation, they should argue we should have less inflation, and not spend time on stupid 'gold standard' talk. If they think Federal Reserve policies are stupid and want control away from them (And I'm sorta with them on that, the Fed's been been completely irresponsible recently.) they should argue we should take it away.
But conservatives always have fun arguing that we should change the system in some incomprehensible-to-normal-people-but-sounds-cool way instead of just arguing that policies should be slightly different. The 'Fair Tax' crap is the same way. 'Hey, the system is slightly broken, let's throw it out for a new system that's demonstrably stupid! Or, rather, let's rant about it for decades!'
>>Posted by: DavidTC | February 14, 2008 7:17 PM
DavidTC, if I weren't a happily married heterosexual male, I would offer to have your baby on the basis of that post.
DavidTC:
I should've let you handle the gold standard critique. Note that my endorsement of commodity monies was only in theory (which perhaps I ought to reconsider - it's been a while since I thought about monetary policy, and I was working off old notes); as a practical matter, as previously stated, a gold standard (or the like) is either redundant or useless, depending on how trustworthy a country's central bank is. In which case, why bother?
MI (re. your 2:36 p.m. post):
Um, didn't someone already say that? ;-P
Saying the tax system here is slightly broken is like saying Richard Simmons is slightly extroverted.
And what's up with all the sports stadiums? How many teams are there in Dubai?
Max Schadenfreude
Saying the tax system here is slightly broken is like saying Richard Simmons is slightly extroverted.
Granted, it is very broken, but it's not broken the way people pretend it's broken. It's not overly confusing to 90% of the people thanks to EZ forms. It could be simplified for small business owners, I admit, but most of that is an attempt to make things cheaper for them. I'm not opposed to any simplification effort, but that is not the actual problem with the tax code.
The actual problem is in that many of the rich do not actually end up paying anything, but that obviously won't be solved with Fair Tax. It would be solved with, oddly enough, expanding what counts as taxable, which would make the code more complicated, but only for people whose job benefit included a private jet and whatnot. If they can figure out who to have no 'income' now, they could easily figure out how to have no 'spending' under Fair Tax. (In fact, that's actually easier to figure out...it's called buying expensive stuff in Canada.)
Likewise, our monetary system of constant slow inflation might be a bad idea, but it's not a bad idea because fiat money is 'evil' and magically causes inflation. Inflation is done on purpose to attempt to match the money supply to the economy. Otherwise we'd have deflation as the economy grew, and deflation, paradoxically, would slow down spending and slow down the economy. Which would be a useful feedback loop if that was our goal, but it's actually the opposite of our goal.
The fact inflation been hurting us recently is not inherent, it's because we've stupidly ignored real economic growth and instead had pretend growth by loaning a lot of money to each other and raising the price of stuff, mainly houses, as we traded them around, which doesn't actually accomplish anything at all. Yet we pretended like that was real growth and that inflation should continue, instead of a) reducing the inflation, and b) restarting actual growth. No growth combined with the Fed ignoring truth in favor of Bush's magical economy delusion is the problem, not fiat money 'causing' inflation.
Yet we have a lot of lunatics who are sure that fiat money causes magical uncontrollable inflation and that we should have stayed on a gold standard, when hilariously our economy is thousands of times bigger than would actually have fit on our gold standard, so we would have been forced to devalue the currency repeatedly if we'd had a gold-based one...aka, 'massive inflation'. Whereas with fiat money we have exactly as much inflation as we want.
Icarus is right.
...why it was so comically stupid a couple years ago when Congress shot down the bid of Dubai Ports World to take over management of many of our ports. Of course, I didn't hear any similar complaints when Dubai's sovereign wealth fund helped bail out Citibank last month.
What's comically stupid is thinking that funds and shipping containers (which can carry bombs) are the same thing. Dubai has been used as a transit point for some very low characters. If they can't keep them out of their own country, I don't see why they'll do any better with our country.
DavidTC wrote: "Granted, it is very broken, but it's not broken the way people pretend it's broken. It's not overly confusing to 90% of the people thanks to EZ forms..." blah blah blah...
David nice way to dodge the real issue dude. But I'm not letting you off that easy...
Again, just HOW MANY teams are there in Dubai? ;-)
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