Special Report
The Next OPEC
Meet the IMF-SDRs — which will chip away at the dollar’s preeminence until…
In 1960, a handful of resource-rich Third World nations, tired of being shoved around by the giant oil companies, met in Baghdad to discuss their mutual problems. Attending were Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. They decided to form a group they named the Organization of Petroleum Exporting Countries — “OPEC.”
At the time, the idea that a handful of poor countries could stand up to the “Seven Sisters” (Esso, Mobil, Shell, Gulf, BP, Chevron and Texaco) — let alone their patrons, the United States and Europe — seemed like a fantasy. Certainly oil lay within their borders but the oil companies pumped it out of the ground, and shipped it by pipeline or tanker to its destination, all the while dictated a price. One habit that particularly galled the OPEC nations was “discounts.” Although the producing countries had long-term contracts, every time the world price dropped the Seven Sisters would announce “discounts” and cut their royalty payments. At best, OPEC hoped to end this practice.
Nothing much happened over the next ten years until November 1970, when America’s domestic oil production hit an all-time peak of 10 million barrels per day. Then production began to decline. It had never happened before. The Texas Railroad Commission, which had limited production since the 1930s to forestall price collapses, told American producers that all bets were off — go ahead produce all they could. It didn’t make any difference. American oil production had peaked. In three short years our imports shot from 18 percent of consumption to 34 percent and OPEC suddenly had market power. Most of American subsequent history has been written around this market shift.
Is there another OPEC on the horizon right now? There is. It’s called Special Drawing Rights (SDRs) of the International Monetary Fund (IMF). It probably won’t make any difference for another few years, but if and when it does, the impact will make the Arab Oil Boycott of 1973 look like a picnic.
The declining resource this time is the American dollar. We have a very privileged position in relation to the rest of the world. Other countries accept our currency, not only in exchange for goods and services but also because the dollar has such a sound reputation that the rest of the world uses it as the international reserve currency. No other country has this privilege. This means we can print far more money than is backed by our national wealth. About one-third of the dollar’s value reflects other countries’ willingness to store their national wealth in dollars.
All this is the gift of our forebears, built up by our sober, hard-working ancestors over the course of the 19th and 20th centuries. As late as 1965, the United States was the world’s largest creditor nation.
We are the profligate heirs who have squandered this inheritance. We now manufacture very little of anything in this country except entertainment, lawsuits, and environmental impact statements. We pay $250 billion a month for foreign oil. We are now the world’s largest debtor nation, with a $10 trillion national debt, and annual deficits now headed for $1 trillion. Future unfunded obligations to Social Security and Medicare total $40 trillion. No one knows how these commitments will be met.
In relation to the rest of the world, we are a declining aristocracy. Such circumstances are not unfamiliar to history. Its pages are filled with the stories of aristocracies that achieved economic success that gave them positions of immense privilege, then saw the source of that that success crumble beneath them. In medieval times, land was regarded as the source of all wealth. People who owned large quantities took titles such as “duke,” “baron” and “earl” to make their privileges seem permanent. Yet soon they found their wealth being challenged by city-bred merchants whose productivity exceeded theirs. Several European revolutions resulted.
The common reaction of such aristocracies is to ignore what is happening right up until the last moment. At the outbreak of the French Revolution, the First Estate — the landed aristocracy — was completely exempted from taxes. For almost a century Britain’s landed aristocracy maintained control over Parliament through “rotten boroughs” that gave them inordinate representation. One of the most poignant portraits of a declining aristocracy in is Chekhov’s The Cherry Orchard, where a landed Russian family sits musing about trivialities while a local entrepreneur — a former serf, no less — carves up their beloved cherry orchard into condominiums. Even as their wealth and privilege slip out from under them, they barely understand what it happening.
America is now in a similar position, particular in relation to the rising economies of Asia. And, like the family in The Cherry Orchard, we continue to absorb ourselves with trivialities while our estate slips away. Thorstein Veblen had a deadly accurate description for this phenomenon in The Theory of the Leisure Class. In a chapter called “Industrial Exemption,” he argues that people who have benefited most from industrial progress are often the most opposed to further industrial advances. Their privileges, he says, keep them immune to the exigencies of change:
The leisure class is in great measure sheltered from the stress of those economic exigencies which prevail in any modern, highly organized industrial community.… and as a consequence of this privileged position we should expect to find it one of the least responsive of the classes of society to the demands which the situation makes for a further growth of institutions and a readjustment to an altered industrial situation.… [B]y precept and prescriptive example, [the leisure class] makes for the perpetuation of the existing maladjustment of institution, and even favors a reversion to a somewhat more archaic scheme of life. [Emphasis added.]
There could not be a better explanation of why, at a time when China is currently planning to build 132 nuclear reactors in the next 20 years, America is absorbed in the fantasy that we can run an industrial nation on windmills and solar collectors.
So how will this play out? China, Russia, Brazil, and other rising economies are all making noises that America has overdrawn its account and they no longer want to be dependent on the dollar for world trade. The Euro has been making steady advances, rising from 18 percent of the world’s reserves to 26 percent over the last decade while the dollar has declined from 71 percent to 64 percent. But the real challenge is likely to come from the International Monetary Fund’s Special Drawing Rights.
Two weeks ago China announced it would be exchanging $50 billion in dollars for IMF-SDRs. That represents only one-fifteenth of China’s $775 billion holdings in U.S. dollars, but it represents a beginning. As the world’s largest holder of U.S. debt, China cannot afford to start a run on the dollar and set off a worldwide panic.
And so the situation will probably bubble up beneath the surface for a few more years until history will suddenly hit one of those seismographic shifts, just as occurred with OPEC. When that happens, watch out. Every American will lose 30 to 40 percent of his net worth overnight. Instead of paying $250 billion a month for foreign oil, we will be paying $400 billion. People will call it “inflation” but in fact it will represent our failure to deal with the realities of the world.
Is there any way we can avoid this? The answer is simple. We can stop acting like pampered aristocrats whose tastes are too refined for the drudgery of making and doing things and start producing something of value to the rest of the world.
Letter to the Editor View all comments (47) | Leave a comment
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Etiquette Man| 9.28.09 @ 6:51AM
With the exception of the rather abrupt ending in an equally vapid final paragraph (fighting a deadline?), this is excellent.
It is an accurate diagnosis, and there is little surprise that the Rx is lacking. There is no one who has any idea how to stop the dire times ahead for this once great nation, so I can hardly blame the author.
I truly shudder when I see the Hollywood illiterati and our cosseted elites on Capitol Hill blather on about alternative energy and CO2 when our nation is quite literally sliding off the cliff, both culturally and economically.
What can be done? What is the plan, beyond vague generalities. If anyone knows, please clue me in.
I truly shudder.
EM
JBobs| 9.28.09 @ 10:01AM
Scrap the climate change nonsense and turn the oilmen loose. True energy independence and a burgeoning domestic oil industry would go a long way to spark the U.S. out of this funk. Unfortunately such a policy reversal would require throwing out the welfare state political bums that got us here... a far tougher chore.
Deborah D | 9.28.09 @ 7:30AM
EM --
I'm with you in the shuddering department. We could start by pushing back against the Democrats' ridiculous Cap and Trade. If we had one conservative (or liberal or independent) politico who could grab the mike and actually articulate what this policy and many more of the spending increases on deck will do to our country, that might be a first step.
Other than voting out the fantasy-dwellers in the House and Senate, I'm not sure what we can do. Although, it would certainly help if some in the private sector (Hey, Bill Gates and Warren Buffet) would start yelling...perhaps some on Capitol Hill would start being serious.
I think our country is committing suicide, and it seems no one really cares -- because the "in" thing to do is to "go green." Please.
philhoey| 9.28.09 @ 7:50AM
Another name for the 'leisure' class is the 'chattering' class. They sit on their Mount Olympus and pass judgment on those in the middle class who are actually creating new wealth through medium and small businesses. In the last year we have seen large businesses and the banking/investment industries, cut open the goose to get the golden eggs and are astonished that the goose is no more. What a surprise. Madoff goes to jail but the rest of the banking/investment industry gets bail out money from Uncle Sugar for doing exactly the same thing. Go figure.
TennesseeVolunteer| 9.28.09 @ 7:57AM
#1 Open all drilling in the US and territorial waters
#2 Tax credits or subsidies for re-insulation of America's houses (can save 50% of heating costs)
#3 Initiate nuclear energy plant building
#4 cut corporate tax rate to 15%
#5 cut individual tax rates by 25%
#6 put prayer back in schools (move this to #1)
#7 stop all government grants to non profits
#8 community health centers
#9 health savings accounts/major medical
#10 more freedom, less big government
Deborah D | 9.28.09 @ 10:03AM
Mr. Tennessee -- your list is too commonsensical. Too American. Too normal. What the heck is wrong with you? (sarc)
Bless you, sir. Can I vote for you?
ACD| 9.28.09 @ 10:14AM
interesting list, I see that you have no idea what you are talking about. I find it pointent that you include the prayer aspect, because what you are asking people to do is live in anarchy, but under the auspices of the Church, so what you hope to create is a theocratic state, which is against everything america (and much of the world) stands for. There is nothing wrong with environmentalism, and if someone opened their ears they might get the hint from the goverment and make the next technological leap in effecient resource and energy production and use. it is all pretty simple, we have employed these methods before, and we certainly can do them again. Stop spouting right wing rhetoric which over simplifies issues and expect them to work.
ELPRESIDENTE'| 9.28.09 @ 2:51PM
ACD or is it ACID? Which by your remarks, may be what you just took a hit of.
Why are liberals like yourself, so afraid of prayer in schools ? Is it because you know that if children learn about a higher being, that they are less likely to become indoctrinated.
That is how a communist nation starts, first thing you have to do is get rid of religion.
For the life of me I do not understand the philosophy of the left in this country, do they really think that having a socialist style of government will be better for them? Do you have so little faith in your own abilities, that you must rely on a government for all your needs? Don't you realize that you are trading freedom for government handouts?
People like you will never understand that as of now you live in freedom, and that very freedom is under attack. If you don't believe me , just look at how Castro and Chavez came to power, and compare that to what Obama wants to do, with his nationalized health care, banks, car manufactures ,cap and trade ect....
Unfortunately , you are probably the type that hold up Chavez and Castro as heros.
chuck in st paul| 9.29.09 @ 5:28PM
"it is all pretty simple..."
Yes it is. Just do the 10 things on his list. You could add building 150 new nuclear power plants and letting the US Marines aviators use wind generators for target practice.
"nothing wrong with environmentalism..."
Yes there is. Just about everything with today's version of 'environmentalism' is wrong. It is totally anti-people and anti-progress. It's a crock. Didn't used to be, but it is now.
"Stop spouting right wing rhetoric which over simplifies issues and expect them to work."
Right back at you, Mr. Marx.
ccc| 9.28.09 @ 10:49AM
If you want more freedom and less government, why do you want the government to take over teaching your kids when and how to pray?
Deborah D | 9.28.09 @ 12:06PM
ACD and ccc, I don't think he wants the gov't to direct prayer. He just doesn't think it should be outlawed since that wasn't the intent of founders. But, you might want to wait for his answer.
ccc| 9.28.09 @ 12:43PM
I've never been to or known anyone who has been to a public school where praying has been outlawed. I am only familiar with policies that prevent the teachers from telling students when and how to pray.
It seems to be a pecularity of the right wing that insists that parents give up their right to control the religious education of their children.
WestRight| 9.28.09 @ 9:27AM
TennesseeVolunteer, that's a great to fo list....let's get started!
davelnaf| 9.28.09 @ 9:33AM
Politics in general has been America's undoing, but it has been the left in particular, represented by the democratic party, that has been most responsible. But, in all fairness, the Washington establishment took on the job of running the world after WWII and one can point to this more than anything else as being the primary culprit.
Barbara| 9.28.09 @ 9:36AM
I fear for our Country, and her citizen's right to a land of opportunity, being done in by the elite of this world and in D.C.
I have emailed, called & faxed my representatives for years about illegal immigration and this topic.
The fact remains, Republicans & Democrats are not listening, nor do I see them try to bring back manufacturing, as they deny us our own resources.
How do we change this? How do we get them to listen and act?
Robert Rosencrans| 9.28.09 @ 9:50AM
A very accurate and sobering article.
Tim| 9.28.09 @ 10:11AM
It will be a strange day when Americans awake to discover that suddenly all that cheap, foreign made crap is too expensive to buy.
Roy| 9.28.09 @ 11:27AM
Barbara:
"How do we change this? How do we get them to listen and act?"
Answer, persuade a politically relevant portion of their constituents.
My own contribution to Mr. Tucker's litany has to do with the software industry. I work with a bunch of Indian programmers who work for 1/6 - 1/4th what Americans do. Currently are Americans better programmers? Yes(for the most part) but not by anything like that margin. Currently the salespeople and analysts are generally American too, because the clients are American, but for how long?
One thing that could slow this process might be the end of the ridiculous fascination with college degrees, which are comically irrelevant not just to this job but to many other jobs they are required for. This causes higher ed spending to spike through the roof and redirects huge masses of resources down unproductive holes.
When the market is behaving stupidly, look to government - Phi Beta Cons on National Review's website carried an article from the Pope Center arguing that college degrees are so widely required because of race-card court decisions that made merit testing legally suspicious.
howard lohmuller| 9.28.09 @ 11:37AM
The irony of America's predicament is that trillions of dollars of oil, natural gas and coal lie under our feet and off our coasts. Along with 100 nuclear plants, we can be the world's largest energy producer and an exporter of energy for the rest of the century. At the same time we can maintain clean air and water standards and practice land conservation.
Special interests don't want to lose control of what they have and have invented ways such as global warming, socialism, and extreme environmentalism to turn away from the natural resources we possess and toward new sources of energy that can't compete without government subsidies, cost more, and create artificial shortages. America is doing the opposite of what should be done because of these special interests.
Howard Lohmuller
chuck in st paul| 9.29.09 @ 5:33PM
yeah,
what he said ;-))
PolishKnight| 9.28.09 @ 12:50PM
Howard, I don't think the granola eating environmentalist policies are due to commercial special interests preserving their power base. It's leftist insanity that they've sold for political ends that they don't know how to get off of. They've drunk the cool aid, plain and simple.
One of the reasons that Americans don't make stuff anymore is that our society is obsessed with white collar jobs. This coincides with a society that has become obsessed with women's equality. Since middle class women don't like manufacturing jobs that gets their hands dirty and often involves heavy lifting, the goal has been to export them rather than have them dominated by men. Yes, no kidding. Check out the teeth gnashing by NOW over a "stimulus" package that has a lot of contruction funds. How dare jobs go to men simply because they accept higher workplace fatalities and injuries?
I chuckle whenever I hear progressive feminists claim that women's rights are correlated with developed countries. It's more like the other way around: Such countries can only afford to indulge the notion of women's equality at the expense of real economic growth. "What if all the women in the workplace went on strike?" they like to threaten. Well, that would probably mean a lot less money in government and personal funds to run daycare and working men wouldn't have to fill in as much meaningless paperwork! In addition, imagine what your gridlock commute would look like if 1/2 of the drivers were off the road and at home at that time!
Unfortunately, most conservatives have bought into the paradox of chivalrous knight in shining armor that tries to protect women from the consequences of their own equality. Eventually, when it all goes south, things revert to nature which is often used as a euphamism for "undeveloped". Isn't it the left that likes to fight bulldozers even as they pretend to be progressives?
howard lohmuller| 9.28.09 @ 2:58PM
Polishknight- The reason the U.S. is losing manufacturing jobs is because world population increases by one billion every 15 years. India and China alone account for 1/3 of that. So these 2 Asian countries alone need to create 15 million new jobs every year. Since these countries are just starting to industrialize, their citizens work for dollars a day while American workers want $100. a day or more.
This is projected through the end of the century. The only way we can continue to provide high wage jobs is by continuously developing technology. Tariffs and union protection will fail to protect jobs because the sum of all economies employing protectionism is less than the sum of all economies engaged in free trade.
The special interests I referred to are the Political Class, business insiders, and environmentalists whom have created a new religion in the world that has a goal reverting to the past. See you on Mars.
Ken (Old Texican)| 9.28.09 @ 1:07PM
Great article, and darned good reflections among you commenters....except of course the ACD ostrich.
ACD, ordered liberty is NOT Anarchy, unless you think America has been anarchic for the last 200 years plus of course.
Obviously you are a facist/communist though, so you cannot grasp that ordered liberty has built the most successful society in the history of the earth. Prayer has helped too.
Even the NFL has a huge group within the league called "The Fellowship of Christian Athletes"
The TV networks carefullly edit it out, but if you ever go to an NFL game, you will note some fifty to a hundred players and coaches quitely kneeling in prayer, both before and after each game.
Though some ignore it, our congess always goes into session with a prayer by the Chaplin, as does our Supreme Court.
...You know what prayer reminds us? That our "rights" were conferred by God and not government.
God bless you sir, in Jesus' name!
765x53| 9.28.09 @ 2:27PM
We must drill oil, we must mine coal, and burn it. Because everything else is fanticy!
The facts of life have not changed in two million years: If you want light and heat, you must burn something. If you want to eat, you must kill sonething. If it does not grow, you must dig it out of the earth.
JP| 9.28.09 @ 2:42PM
The 2 huge entitlements, Social Security and Medicare will soon account for over $1.7 trillion of our budget (roughly $3.6 trillion and rising). How we "reform" these 2 unsustainable entitlements obviously should be what absorbs us -not Cap and Trade or ObamaCare. Otherwise, cuts in onther domestic programs and military spending are pointless.
To add to our misery, our economy is not configured for the kind of growth it would take to pay for these 2 massive entitlements through increased revenuse generation (via tax cuts). Demographically, we would need fertility rates of about 4-6 children/ female to pay for Social Security and Medicare. We hove around 1.9-2.1 children/female. There are just not enough consumers and producers at the correct age/wage scale to support distributing nearly $2 trillion of our wealth to the elderly. To make matters even worse, Congress has been borrowing the excess Social Security taxes for 2 decades. So, when accountants go to person X's retirement account who has just retired, they will find nothing but IOUs. Current estimates peg that the total costs of seeing Boomers into thier Golden Years and beyond will be around $70 trillion.
But instead of tackling this enormous and politically toxic issue, we are absorbed in windmills, Public Options, and solar panels. Max Baucus, and President Obama plan on addding everyone to Medicare just when it reaches insolvency. Optimisitc estimates of our public defecits through 2017 are about an additional $10 trillion of debt added to our current $11 trillion.
What a mess.
The Sage from West Linn| 9.28.09 @ 3:17PM
The Plan should be to build 200 nuclear plants in the next 4 years and add 10 per year after that until we have so much electric power we drive the KW/hr cost below $00.02. We should expand our abundant natural gas supplies at the same time. This will provide an abundant clean energy for industry and reduce us supporting buying oil from dictators and countries that furnish terrorists. We need to at the same time reduce the deficit each year for 4-5 years until we are balanced or within 10% of a balanced budget. This will stop the debasement of our currency and create stability. We should continue our national security efforts but everything else is on the chopping block, but no one has the courage to do this including the Republicans. We can not continue to sell our posterity into indentured servitude so we can have socialism *lite* and make it work where others have failed. It will take a crisis to move us from our current path or great leadership and courage, unfortunately I don't see any Ronald Reagans out there .
Ken (Old Texican)| 9.28.09 @ 3:50PM
Hi Sage
Excellent thinking!
(except)
There are SOME Republicans with test......r fortitude. We gotta' write 'em and give 'em an attaboy from time to time........... every day.
#2
We gotta' nominate a whole bunch more and repeal all this nonsense.
Nick| 9.28.09 @ 4:09PM
Many great posts on this thread everybody.
If I could add my 2 cents, one has to get into the mind-set of the liberal. Without actually getting the lobotomy.
After Pope John Paul II, Ronald Reagan, Margret Thatcher, et al, succeeded in defeating the vile Soviet menace; the closeted communists, foreign and domestic, doubled their efforts bring down the U.S.
It was imperative to put a mill stone around America's neck so the rest of the world could catch up.
You see, in the liberal mind, it is not fair that the U.S. is so far ahead of the rest of the world. With out the Soviets as a "check" on our power, we would dominate everyone.
It's the same foolish attitude they have about rich individuals. They have to be brought down, so others can catch up.
Pingback| 9.28.09 @ 4:25PM
An Agenda For Change « Free 2 be in America links to this page. Here’s an excerpt:
Margie| 9.28.09 @ 10:32PM
Why don't you good men run for office? You are the kind of men we need!
fontnhed| 9.28.09 @ 11:42PM
How do we fix this? Easy. Two Words.
TERM LIMITS
TennesseeVolunteer| 9.29.09 @ 12:25AM
Thanks for having my back, ladies and gentlemen. In the last couple of weeks I have had a chance to interact with many business people and professionals. All of them, except one, are scared for their businesses, employees, families and friends over what the next 12 - 18 months portend if we don't interrupt the socialist trend of this government. None of them see a rising business climate in 2010. I am currently looking to get back into educational administration to feed my hobby as a small businessman. I'm sure many of you are in the same boat.
Please make sure that while you help educate we poorly educated readers at AS that you also spend daily quality time to energize those around you to vote their conscience in 2010 and 2012.
I mentioned putting God back in the schools in my previous post because without Him/Her our ability to help, in some small way, to restore America with individual freedom will be lost.
With God, all things are possible.
Pingback| 9.29.09 @ 10:29PM
Twitter Trackbacks for The American Spectator : The Next OPEC [spectator.org] on Top links to this page. Here’s an excerpt:
AZ Bill| 9.30.09 @ 12:50PM
Term Limits YES! MAXIMUM TWO TERMS in any elected public office The President is limited to two terms in office, the same limit should apply to all elective offices, NO MORE 'professional' politicians remaining in the same office, term after term.. Limit allows different levels of public office, i.e. Two terms in HR, two terms in Senate, two terms as President. Limits also applicable to Lobbyists and Advisors.
Perks: Political perks ONLY apply while actually holding elective office. Bureaucrats, non-office holders contribute to the same 'Social Security' plan and are covered by the same retirement and health insurance rules and/or benefits as all other citizens except during actual terms of public service. Only the President and retired Military Service people entitled to Government paid retirement and medical benefits not available to the general public.
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