“You going to watch the State of the Union?” I asked a friend Tuesday. “I’m going to listen on the radio. I want to hear it, but I don’t want to have to look at him.”
Understandable, but by only listening, my friend missed the key to the speech. Viewers might have missed it, too if they were not watching the upper left corner of the screen. When George Bush got to the energy section of the address, the usually scowling Dick Cheney behind him suddenly began winking and smirking and rolling his eyes at someone off camera. The message on his face was far clearer than the one coming from Mr. Bush’s mouth. It said: “Don’t believe any of this. The American government is in the oil business. That is not going to change.”
Later, after the speech, another friend observed, “It all goes back to Cheney’s secret energy task force. If we ever find out what was said there, we’ll see this whole thing is just about controlling the oil.”
He’s right – the whole thing is about controlling the oil. It’s plain for anyone with clear eyes to see, but the mainstream media is so defeated and self-censored it refuses to engage the subject until someone official in Washington gives it leave to do so. The beltway types know this and so everyone expends great effort to ignore it.
Monday, Bloomberg News reported OPEC members have been selling U.S. Treasury securities at an alarming rate. Oil nations, including Indonesia, Saudi Arabia and Venezuela, sold almost 10 percent of their Treasury securities – $10 billion worth – between 1 Sept and 30 Nov 2006. As a result of the sell-off, the Treasury has had to raise the rate of interest it pays on its borrowing.
The received explanation for this is that when the price of oil is high, producing nations spend their excess cash on interest-bearing instruments such as T-bills, T-notes and T-bonds. When the price of oil falls – as it has been recently, the oil nations sell the Treasury securities to ensure a steady income. That explanation is true, but it’s not the whole explanation.
Because Messrs. Bush and Cheney have been irresponsible in their management of public funds, America is deeply indebted – via Treasury securities – to foreign nations like OPEC countries. Dumping those securities back on the market was a warning to the Bush administration: keep your consumption up or we’ll swamp you with your own currency.
In the past, when oil nations started dumping dollars, China bought them, because it has been in China’s interest to keep America solvent, so America can buy more Chinese-made goods. On the other hand, China increasingly competes with the U.S. for resources, like oil. As time passes, it is less in China’s interest to prop up the dollar for mercantile reasons and more in China’s interest to undermine the dollar for competitive reasons. Toward this end, China has recently slowed its consumption of U.S. Treasury securities and is diversifying its cash reserves into currencies like the Euro. Bloomberg reported Wednesday that Persian Gulf nations are joining China in moving away from the dollar in favor of the Euro.
All that is dull economics; I know and I apologize. It’s also the reason Dick Cheney was smirking Tuesday evening. He knows only one of Mr. Bush’s proposals will actually be followed up on – the notion of doubling the size of the Strategic Petroleum Reserve (SPR). The SPR is a series of underground caverns, capable of holding 727 million barrels of oil – enough to supply the nation, at current consumption rates, for two months. The White House will help prop up the price of oil by using our money to buy and sit on more oil.
Mr. Cheney has sat behind Mr. Bush year after year and heard the empty promises of energy efficiency and “freeing America from dependence on foreign oil.” He knows the words are insincere; they must sound funnier with each passing year, until Tuesday he couldn’t stop himself from giggling like a high school sophomore.
It won’t be so funny for the rest of us.
© Mark Floegel, 2007
State of the Union video:
Bloomberg story on Treasury securities: http://www.bloomberg.com/apps/news?pid=20601109&sid=a5_a16pzE3rs&refer=home
Bloomberg story on currencies:
Originally posted on http://www.markfloegel.org/