Frank's Musings

Addiction to Oil Money

The rising price of crude oil is said to force savings by producers through purchases of long-term U.S. Treasury bonds. Aside from the doctrinal legerdemain that allows Islamic governments to invest in interest-bearing securities, these Middle Eastern and other major petroleum suppliers select the most trustworthy investment instruments for safekeeping their wealth.

This is a major benefit to the U.S. economy, permitting its government and consumers to spend heavily beyond their current revenues. One of the main reasons for this indulgence granted by foreign public money-managers is their confidence in the vigilant protection of investor rights by U.S. regulators. U.S. taxpayers have become addicted to foreign government financing of their and their government’s free-spending habits. The cost to U.S. taxpayers of investigating and prosecuting private and public sector securities fraud is well worth its production of liquidity to our capital markets -- perhaps an unintended consequence.