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News & analysis from Proletarian Internationalist Notes—news, reviews and analysis from a global perspective
Amerikan-Saudi differences: The united $tates gets money for nothing while Saudi Arabia has to sell part of Aramco back to the Amerikans
May 9, 2016
Recent months illustrate some differences between Saudi Arabia and the united $tates.
The Federal Reserve creates dollars out of thin air through actions such as buying assets and just crediting the sellers’ accounts—manipulation of information to make loanable and investable money appear that didn’t belong to anyone before. This puts more bank account dollars into circulation. One form of this is quantitative easing, which among other things has subsidized banks through the purchase of higher-risk assets at higher prices. The created money that banks didn’t loan (which they don’t have to hold in reserve and count toward minimum reserve requirements unlike bonds for the most part) is more than the banks would have got for selling the bonds without the Fed’s purchases. Amerikans have benefited from years of quantitative easing without high inflation. The total amount of u.$. quantitative easing since 2008 is possibly more than the would-be market value of Saudi Aramco and is comparable to the size of other countries’ entire economies.
Quantitative easing officially ended in 2014, but Amerikans are still enjoying the benefits. And now, after some other imperialist countries’ central banks have imposed negative interest rates, there is talk among businesspeople and investors of negative u.$. interest rates and more assets with negative yields in nominal and real terms—a way for the united $tates to get money from non-Amerikans who worship the dollar.(1) Negative interest rates would encourage some consumer spending and business investment of the new money in circulation. There wasn’t hyperinflation after the Fed’s quantitative easing partly because much of the money wasn’t spent, but it can be loaned and spent over time without hyperinflation. The Fed may consider lower interest rates to promote this if economic growth is perceived as insufficient, resulting in wealth extraction from non-Amerikans.
The united $tates exploits the world also through high export prices. The united $tates’ high productivity actually represents net transfers of value from other countries. While the united $tates exploits the world through dollar hegemony and high so-called productivity, Saudi Arabia has to sell Aramco (formerly the Arabian American Oil Co.) back to Amerikan investors and has to overcome 9/11-related warmongering to do so.
Several reports on the planned initial public offering of Saudi Aramco have raised the idea that 9/11 lawsuit threats would make executing the IPO more difficult.(2) Being able to sell shares on the New York Stock Exchange, in addition to other exchanges, would be more favorable to Saudi Arabia for the purpose of getting the most money it can from selling 5% or less of Aramco and obtaining a high market valuation for the other 95%. The possible passage of the Justice Against Sponsors of Terrorism Act (S.2040) has been complicating the idea of a New York listing.
The U.$. Senate bill (https://www.govtrack.us/congress/bills/114/s2040) enabling lawsuits against more foreign governments over terrorism was recommended for further consideration three weeks after Saudi Arabia floated the idea of an IPO in January. In this area, there is a potential for conflict between u.$. banks and investors, on the one hand, and other exploiters—reactionary Amerikans who don’t understand how their wages and retirement incomes benefit from trade and investment in general.
It’s not that u.$. imperialists (or u.$. workers’ retirement fund managers) are more progressive than u.$. workers and the sacrosanct idol that is the so-called “middle class.” They aren’t. Rather, there is no revolutionary Amerikan class in the united $tates and no revolutionary group large enough to factor into the decision-making of non-Amerikans. Non-Amerikans should know this regardless of political persuasion. Amerikans are generally exploiters benefiting overall economically from imperialism and capitalism. Even if the movement on the JASTA bill so close to the IPO talk in January was a mere coincidence, it’s an example of how constantly favoring the demands of so-called non- “elites” and so-called workers in the united $nakes leads to extremely reactionary results. Systematic bias toward any Amerikan class in that regard is reactionary and pro-Amerikan.
The US$2 trillion or $2.5 trillion estimated value of Aramco is less than “9/11 families” have sought in the past. There is no way these reactionary parasites would be able to get even a tenth of Aramco in reality without an invasion, but being exposed to lawsuits while selling or buying back shares in Amerika could affect the value of Aramco and have other consequences. Saudi Arabia is having to sell a stake in Aramco to Amerikans in effect, partly because of a situation Amerikans are responsible for and benefit from, but Amerikans are doing things that may negatively impact the proceeds from selling any given stake in Aramco. The Amerikan abuses must stop. If there is going to be more imperialist polytheistic influence near Mecca and Medina, it should cost the Amerikans more, not less.
Considerations leading to a sale
Non-Amerikans trade on the NYSE. Having the option of selling on the NYSE may be just as desirable as more non-Amerikan and non-British ownership of the initial 5%. There are trade-offs. Not every single thing about foreign ownership or investment is bad. Inequitable transfers involving trade, and disparate valuation of First World and Third World labor in the same markets, are the largest sources of wealth for Amerikans, not profit from foreign investment. Amerikans who own some of Aramco would think twice about invading Saudi Arabia. (Although, Amerikan ownership could also lead to more war in the region to protect investment.) Capital inflow could lead to higher wages and a basis for non-oil goods trade with less international exploitation by other countries. However, the sale of Aramco and surrounding issues illustrate crucial differences between Saudi Arabia and typical countries in the First World.
Some have suggested that oil prices would stay low even if Saudi Arabia wanted to see higher oil prices. The reasons given include that Iran is itself trying to gain market share after years of sanctions. Saudi Arabia’s past actions decreasing oil price may be seen as being partly in anticipation of the U.$.-Iran nuclear deal. It could be the Amerikans play Iran and Saudi Arabia off against each other to make oil prices lower—less than they would be with usual exporter country competition—despite the impact on oil-producers in the united $tates.
Making Aramco a publicly traded company is being portrayed as good for diversifying the Saudi economy. Of course, selling Aramco wouldn’t by itself change anything in terms of industrial composition or employment in Saudi Arabia. Importantly, if oil prices go up and a point is reached where Saudi Arabia can do nothing about it, other sectors in the country will be affected. (Certainly Amerikans, to the extent they can be distinguished from non-Amerikans in investment, should own or have control over less than half of the 5% and fewer than half of any shares sold to foreigners later.) That is something to look into. Merely changing who owns Aramco wouldn’t eliminate all of the structural issues involved in uneven growth of the Saudi economy.
The proceeds from an IPO would reportedly go to a sovereign wealth fund as would the rest of the company. Saudi Arabia already has a large fund that it has been drawing from recently to address the budget deficit. Most of the fund is assets in other countries. $100 billion or more from an IPO, and a similar or lesser amount every year, could be used to invest in or subsidize industries in Saudi Arabia, but it would be tempting to continue investing in less-risky assets with higher returns initially than domestic projects. Also, $100 billion happens to be less than what has been announced or projected as the government deficit at different points, and Saudi Arabia has sought to borrow billions of dollars in recent months. It seems possible the government will sell portions of the remaining 95% stake sooner rather than later. Among other things, it depends on whether the additional yield after subsuming Aramco under the sovereign wealth fund would be greater than Aramco’s current average annual profit.
Differences between the dollar and the riyal as fiat currencies, and inflation
Of relevance in this context is that the Saudi riyal is still pegged to the u.$. dollar. Though Saudi Arabia can change the rate, for various reasons Saudi Arabia is not a state that can easily just print money or increase numbers in bank computers to either finance a deficit directly or increase money available for investment. Nor can the government require that the oil money currently going to Saudis be pooled in a bank that must spend it on investment in Saudi Arabia, without substantial political risk. Right now, media outlets are highlighting that Aramco would or could be the world’s most valuable company, but an important difference between Saudi Arabia, and the country in which Apple Inc. is based, is that the united $tates can benefit more from printing money than Saudi Arabia can due to the extent and degree to which the dollar is used in trade around the world. This is particularly the case at the moment with the dollar having been increasing in value in the long term (except for the past few months) relative to other currencies, and inflation still being so low. After almost a year of almost no inflation, or deflation, in 2015, 2016 is on track to have an average inflation rate of around 1.5%, which is low historically.
Conversely, the united $tates benefits from inflation as a debtor at the expense of non-Amerikans who own fixed-rate assets. It also benefits in the long term as the minimum wage and other wages go up due to higher prices and more investment. Saudi Arabia is mostly a creditor country and stands to lose from inflation.
The M1 and M2 money supply statistics for the united $tates have been increasing, since mid-2011 at about a 5% annual rate or higher.(3) This is not money-printing in the sense that the U.$. Treasury Department literally prints money and keeps it for federal spending, but what the Federal Reserve does independently in consultation with the White House results in more money available for investment and taxable transactions. One cannot tell just by looking at GDP and inflation how much of u.$. economic growth would have happened without excessive monetary expansion. Usual indicators and statistics can be misleading or mask redistribution to the united $tates.
5% is less than the average money supply increase during the quantitative-easing-related surges, but for contrast the Saudi Arabia M1 money supply contracted from mid-2015 to December 2015.(4) There has been a slight upward trend since the Aramco IPO talk at the beginning of 2016 and the announcement of austerity measures in the country. In addition, Saudi Arabia inflation in the last several months has been two to three percentage points higher than u.$. inflation in keeping with a longer trend.
Flows and politics
The united $tates can get wealth through oil price drops that both increase the value of the dollar and result in less money going to Saudi Arabia as payment for oil. The money Saudis do get they don’t spend on consumption to the extent Amerikans do. The general picture is one of resources leaving the country and capital staying outside Saudi Arabia rather than coming back to industrialize the economy in non-oil sectors. The construction and real estate boom in Saudi Arabia generally doesn’t correspond to growth in non-oil sectors. Saudi Arabia buys billions of dollars in weapons from the united $tates each year, which does nothing for Saudi Arabia from a production standpoint and goes to prove an underlying instability in the u.$.-Saudi relationship. A relationship based on ties with certain sectors of the u.$. economy can obscure or exist alongside conflicts in other areas.
In other ways, the united $tates gets wealth for doing nothing, but ignorant, stupid or lying “progressives” and “socialists” speak as though profit, “productivity,” and government spending or tax revenues, in the united $tates could be accounted for by fabulous physical and mental exertions of Amerikan workers. They are at the same time in agreement with a variety of economists about a current or impending crisis, but differ in viewing crisis as something to be resolved through some AmeriKKKan proletariat taking and distributing u.$. wealth. The idea of equalizing income while continuing high levels of government spending is in line with Donald Trump’s recent suggestions this month of printing money and negotiating the country’s way out of paying back the money it borrowed from China, Saudi Arabia, Japan, and other countries. (Well, at least Trump admits Amerikans owe the world something and might not pay it back. Others who minimize international exploitation, or don’t acknowledge u.$. exploitation of other countries at all, only suggest other countries should be the ones paying reparations—to the united $tates. Or not paying back loans could be a way of Amerika getting what’s owed to it, in Trump’s mind. Likewise, many Democrats don’t see how college loans include wealth stolen from the Third World and think middle-class people are owed something in various ways.)
A country can face crisis and painful adjustments and yet still be exploiting other countries, or benefiting from loans that may or may not be paid in full because of currency depreciation and inflation. There are many notches the u.$. economy could fall to, in terms of “productivity” and wages or employment, before a majority of Amerikans would even cross the line of not being exploiters, let alone not being privileged relative to most workers in the world. With each drop, Amerikans seek to regain privilege. With each drop, there is an opportunity for fascism and fascist movements to develop, including fascist movements falsely calling themselves “socialist” that would perpetuate oppression and repression. The united $tates owes other countries trillions in reparations, and if even a portion of this were to be paid today or u.$. “productivity” were to be halved, it would contribute to crisis but Amerikans would still be exploiters struggling to preserve and gain more privilege.
When the extent of international exploitation isn’t acknowledged, crisis is difficult to understand accurately. Many in the Western “Left” discuss crisis as though as though international exploitation were of minor significance, irrelevant, or of secondary importance politically, but international exploitation is in fact the basis of the huge service sector in the united $tates, high wages, the u.$. fiscal deficit, the trade deficit, the welfare state, massive monetary expansion, high inflation, deflation, incomplete and unstable monetary hegemony, and other things that are related to crisis. Countries are struggling against international exploitation whether they want to call it that or not. When the relationship between international exploitation and crisis isn’t understood, there may be a tendency to underestimate the potential for crisis or even-more serious crisis, and there may be a tendency to underestimate the depth to which the united $tates can sink or underestimate the means available to lessen the impact of crisis.
Challenges for Saudi Arabia
The high “productivity” (value added per hour worked) of u.$. workers represents high wages and transfers from Third World workers. High “productivity” is found in various u.$. industries. Saudi Arabia’s oil industry has few workers relative to non-labor costs and revenue and thus seems wondrously productive, but the kind of productivity seen in Canada, Australia and even Greece developed over a long period of time with gradual wage increases in industries those countries had advantages in. To replicate this in two decades in Saudi Arabia would be a challenge to say the least. If Saudi Arabia were to end up selling most of Aramco, it would be a struggle to not develop low-wage goods-producing industry, service industry of a kind that produces little that is internationally tradabe, and excessive reliance on foreign investment income for consumption.
With crude prices having dropped to where they are now, it is clear that mostly-oil-exporting Saudi Arabia has already suffered disproportionately in comparison with other countries and why. Amerikans are benefiting from their relationship with Saudi Arabia overall. But they threaten or criticize that relationship, and defame Saudi Arabia in the media, to prepare Amerikans and non-Amerikans for war against Saudi Arabia and other countries when it will have become necessary.
Like any other country, Saudi Arabia has interests that are not identical to the united $tates’. There will be anti-Amerikan struggles to side with Saudi Arabia in, including in the context of doing business with Amerikans without being hassled. Iran is also having difficulty doing business with Western imperialists. The fact that the Saudi ruling family is exploiters doesn’t matter globally at the moment. There are in fact more exploited people in Saudi Arabia, even among non-migrants, than there are in any nation inside u.$. borders, but that isn’t a reason to work with the CIA to overthrow the Saudi government. That would represent a reactionary understanding of class struggle outside the united $tates or of revolutionary upsurge being located outside the First World. Those who think siding with the united $tates is fine, because of some imaginary proletariat pressuring leaders there, are mistaken. Quite the opposite, the proletarians and other toilers in and around Saudi Arabia through their pressure and anti-Amerikanism help Saudi Arabia in its struggle against neo-colonialism and Amerikan influence, and this is to the benefit of the oppressed.
The Third World and oil-exporting countries have something to lose if Amerika defaults. They also have something to gain. No doubt the situation makes many non-Amerikans queasy, but hopefully there can be agreement in principle that the u.$. economy shouldn’t be saved at the economic expense of Third World and oil-exporting countries.
Any relationship with Amerikans should not get in the way of Arab unity and Muslim unity. Saudis’ getting out of the oil business—which might or might not have to involve partial Amerikan ownership of Aramco—could lessen conflict with Iran, but changing hands would leave the business intact in Saudi Arabia. That may make for some interesting dynamics. So this may be difficult to see at the moment, but there may be an anti-Amerikan or pan-Islamist motivation involved in letting go of Aramco. Certainly there has been Arab, Muslim, proletarian and Saudi pressure on the Saudi government in relation to oil and Saudi cooperation (involving oil-related conflict) with u.$. foreign policy. Mohammad bin Salman, Chairman of the Council of Economic and Development Affairs, said, “We recognize that Allah the Almighty has bestowed on our lands a gift more precious than oil. Our Kingdom is the Land of the Two Holy Mosques, the most sacred sites on earth, and the direction of the Kabba (Qibla) to which more than a billion Muslims turn at prayer.”(5) ◊
• “Kingdom building first solar energy plant,” 2016 April 7. http://saudigazette.com.sa/saudi-arabia/kingdom-building-first-solar-energy-plant/
• Talk of low economic growth, low spending, and tax cuts and low interest rates “not working,” which could be used to justify negative interest rates: “The economy’s real drag: Us,” 2016 May 8. https://www.washingtonpost.com/opinions/the-economys-real-drag-us/2016/05/08/c3b6c936-13bc-11e6-93ae-50921721165d_story.html
1. “CITI: The Fed would attempt one last ‘Hail Mary’ before announcing negative rates,” 2016 May 5. http://www.businessinsider.com/citi-says-fed-would-do-qe4-before-negative-rates-2016-5
“Even Warren Buffett is confused by negative interest rates,” 2016 April 29. https://secure.marketwatch.com/story/even-warren-buffett-is-confused-by-negative-interest-rates-2016-04-29
“CNBC Excerpts: Billionaire Investor Warren Buffett on CNBC’s ‘Squawk Box’,” 2016 May 2. http://www.cnbc.com/2016/05/02/cnbc-excerpts-billionaire-investor-warren-buffett-on-cnbcs-squawk-box.html
“U.S. unlikely to experience negative interest rates,” 2016 May 5. http://www.pacbiztimes.com/2016/05/05/u-s-unlikely-to-experience-negative-interest-rates/
“How low can interest rates go? Try negative 4.5%,” 2016 February 10. http://blogs.wsj.com/moneybeat/2016/02/10/how-low-can-rates-go-try-negative-4-5/
“Market Extra: Investors lose $24 billion a year on negative-yielding bonds,” 2016 May 5. http://wswatchdog.com/2016/05/05/market-extra-investors-lose-24-billion-a-year-on-negative-yielding-bonds/
2. “Saudi Aramco plans London listing but doubts grow on $2.5 trillion claim,” 2016 May 8. http://www.telegraph.co.uk/business/2016/05/08/saudi-aramco-plans-london-listing-but-doubts-grow-on-25-trillion/
5. “Full Text of Saudi Arabia’s Vision 2030,” 2016 April 26. http://saudigazette.com.sa/saudi-arabia/full-text-saudi-arabias-vision-2030/