Sunday, June 8, 2008

Another Consequence

Here's another consequence of higher oil prices:

I had estimated that if oil averaged $115 for the year, the Gulf would add roughly $400 billion to the coffers of its sovereign funds and central banks. Just to be clear, this is money that is invested abroad; the various domestic investments of the big Gulf countries aren’t counted — even if they are done by a sovereign fund or a subsidiary of a sovereign fund. Overall official assets of the oil exporting economies might increase by something like $800 billion.

That would be roughly twice my estimate for the increase in their assets — excluding capital gains — in 2007. And $400 for the Gulf and $800 for all the oil exporters now looks like an underestimate. $450b and $900b look more likely now …

What this means is that the U.S. is exporting tons of cash to the oil exporters. TONS. So not only are we spending billions per month on Iraq, were shipping billions to various bad actors in the region .... all so pretty blondes can drive gianormous SUV's while talking on their cell phones.

The old saying, nothing exceeds like excess fits here (yes, I know that's not the old saying). Using the principle of reverting to the mean, the U.S. is in for an equally painful period of pullback at some time. The only question is how quickly and sharply the pain will come. So far it's been pretty quick. Whether we'll get a reprieve and a slow down in the pain ..... we'll see!

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