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Foreign exchange reserves normally only come into attention when there is a capital accounts crisis in a country with a sudden surge of capital outflows ... the immediate impact of that is a collapse in the exchange rate, which can interfere with essential imports (food, fuel, etc.), but the central bank can use the foreign exchange reserves to prop up the exchange rate and slow the decline while the government tries to sort out a more permanent fix.
Does peak oil qualify as a sudden surge of capital outflows in energy-importing countries?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Carrie (migeru at eurotrib dot com) on Mon Jun 2nd, 2008 at 06:34:31 AM EST
[ Parent ]
... therefore requiring either reduction in other current account outflows to balance it within the current account, or else an increase in capital account inflows ... as they say, "recycling the oil wealth".

For those who don't recall the debt crises of the 80's ... the push to recycle the current account surpluses of the OPEC oil exporters in the later 70's was a big part of laying the foundation for the debt crises of the 80's.

The first cabs off the rank in that series of debt crises were those developing nations like Brazil that has a strategy of relying on heavy foreign borrowing, where the knock on its current account from the oil price shocks suddenly left it unable to service its overseas obligations. But the push to recycle oil incomes made that worse as well ... when Brazil was in the stage of borrowing to meet existing debt obligations, the push by major money center banks looking to attract oil country funds by offering high returns meant that Brazil was able to dig itself far deeper into a hole than it should have been able to do.

The big change now is that we have just gone through a big wave of the same thing, except this time recycling the profit income gained by appropriating basically all productivity gains for nearly a decade, rather than splitting them with labor roughly 50:50 as under the Fordist regime. How the challenge of recycling oil incomes is going to work out in the current climate is anyone's guess.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 2nd, 2008 at 10:37:33 PM EST
[ Parent ]


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