Saturday, May 01, 2004

No Blood for Pitta Bread!

Mute 27 Cover

I have an affectionate respect for Mute magazine, which always has a surprising new angle or link in every issue. They like to wander off the reservation, going beyond art and culture, perhaps on the theory that "I don't know much about economics, but I do know what I like". I'm working my way through the current issue now.

They report that two German scientists have come up with a theory, published in a German international relations journal, that the Iraq war was launched to protect the status of the U.S. Dollar as the global reserve currency and the seniorage profits that result from this. These lads are probably a bit loopy. I strongly suspect that either I or they are making some very basic mistakes. However, I don't have access to the original paper (yet!).

I'm no scientist, but I had thought that fossil fuels are described as hydrocarbons, whereas carbohydrates are those nutrients that Dr. Atkins gets worked up about. The

The amounts available from oil exports for purchasing U.S. dollars in general and treasury debt in particular, which I guess at about $29bn/year (at March's 2.8mn b/d IEA production estimate @ the $28/b top of the OPEC range) sounds big, but the big players though aren't the OPEC countries but the Asian governments, especially China and Japan, who keep their earnings from trade in dollars rather than foreign currency as a mercantilist strategy to maintain their level of exports. Think of China with (I think) about $500bn in dollar assets. Mr. Hu and his colleagues know that if their currency rises in value against the dollar, the consequences in terms of unemployment could result in them hanging from the 长安大街 lampposts.

The same mercantilist logic seems to motivate all the other economies - Korea, Japan, Taiwan, HK and Thailand. Any push to devalue the dollar would run into this huge tsunami of intervention, such as that undertaken by the Bank of Japan recently.

See for example this column from William Pesek on Bloomberg.

I can imagine I'll come across the paper again in the oil project, so a fuller analysis can probably wait.