The U.S.: The Banana Republic for the Global Economy of the Next Century

A colleague of mine yesterday posited the question: What will happen to the countries of the Middle East when oil runs out? His initial position surrounded their fall from power, on the global playing field once their primary asset of global prominence dries up. Further, he pointed out that those governments have not invested significantly in alternative energy either to continue their dominance in energy markets. And so the story plays out that CHINDIA would be the only obvious powerhouses in 50-100 years.

Upon further inspection, however, the trends speak to the opposite: our dollars spent buying oil today will finance the Middle East's potential global dominance of the next century, regardless of oil's staying power. With a barrel of oil trading above $90, oil-rich nations are accumulating dollars at an astounding rate. These dollars, combined with the dollars in State Investment Vehicles in Singapore, China, and elsewhere, are building what American firms have historically affectionately called 'warchests' for aquisitions. Historically, US firms enjoyed free reign in the global buying binge, consuming the world's best assets and intellectual property.

But the tide is turning: this growth in global dollar harvesting from the insatiable appetite of Americans to feed their cars is leaving the US incredibly vulnerable to outside investment; it is a free market after all, isn't it? Recently, a spate of deals have been announced whereby firms from the East are taking major stakes in damaged firms in the West. Citibank recently accepted a major offering of $7.5 Billion from Abu Dhabi, and this surely won't be the last of this type, but quite the opposite.

Therefore, as oil runs out, these countries will use the oil dollars accumulated today to buy major assets in OTHER industries, positioning themselves to be global owners of major strategic assets OUTSIDE of oil. That is far more intense a proposition than simply being able to control the short term price of oil. And assets in the US are seen as cheap...Even European companies aren't immune: UBS just announced today an $11 billion injection from the East because of it's exposure to credit woes in the US.

This all stems from American's over-exposure to debt, via education, credit cards, automobiles, and mortgages. This debt is increasingly owned by the East, who will now begin to own more and more of the actual industries, and hence the intellectual property associated with them, as well! They extended us too much debt, our assets now are falling in value, and then it is the very debt holders whose checkbooks are ready to buy the aforementioned distressed assets.

The countries in the Middle East and the Far East are using their coffers to set themselves up nicely for the next century and it will turn out that the American Worker will be working for foreign owners, a true reversal of the Banana Republics of yester-century!

-Alok Appadurai