Saturday, November 18, 2006

Recycled Petrodollars Holding Up European GDP?

So claims Erik Izraelewicz in a blog at lesechos.fr.

rec_bin
[Thanks to epa.gov for the image.]

Here's a translation of the pertinent sentences:

"The price of petroleum has tripled in three years, [Dubai's] purchasing power too. At this moment they are bringing in two billion euros a day -- enough to buy all the businesses of the CAC40 [French stock market] in less than a year."

[Translator's note: interesting to think that Europe must first buy petrodollars in order to purchase petroleum; therefore, the "petromonarchies" as he calls them must then invest those dollars, and apparently they have decided to buy back euros with at least some of it.]

"...for their economies, they have learned the lessons of the past. They used to invest in real estate or loan money to countries that were unable to pay them back. They got their fingers burned. Out of the question this time to make the same mistake."

"China and Russia are not the only ones interested in our large companies. So are, and we might say most particularly are, all these petromonarchies. For the last few months, they have been caught up in a veritable buying frenzy."

"Dubai, for example, has paid one billion euros for the 300 Travelodge hotels, 1.5 billion for Tussauds, ... five billion for the management unit of P&O ports. The next stage is this weekend. The target, this time, is Germany, the great German enterprises, the Lufthansas, Siemens, BASF and still others.... No real shock, therefore, to hear via the grapevine that Dubai wants to buy a participation in EADS."

"This recycling of petrodollars is, up to a point, good news for us. It maintains the good health of our stock market. It explains cheap money. In the end, it is one of the sources of our present growth rate. If these monarchies didn't recycle their petrodollars, the world would be in danger of falling into a state of paralysis. Let's remember: that's what happened after the petroleum shocks of 1973 and 1979."

See my own post regarding today's recycling of inflationary purchasing media back into the US and other economies, and how it effects our bubbles.

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