...The Wealth Transfer from West to East

an administration to lighten regulatory oversight at one of its market holdings, a meat-packing plant, for example, where it would rather not have such stringent quality inspections, or raids looking for undocumented workers.

Imagine further America taking sides with Taiwan when China finally makes its move to annex the island nation. Financial threats could force the U.S. to stand aside or see its economy ruined and the dollar in free fall.

It is easy to lapse into paranoid scenarios. But as Schumer says, “there're only two choices: have foreign companies invest in these firms or have massive layoffs”.

Short of adopting financial protectionism, there's a whiff of helplessness in the air. Not only the U.S. is apprehensive. In a news conference last July, German Chancellor Angela Merkel asked, “How do we actually deal with funds in state hands?” In a speech French President Nicholas Sarkozy said, “I believe in globalization but I don't accept that certain sovereign wealth funds can buy anything here and our own capitalists can't buy anything in their countries.”

THE GROWING POWER OF ELSEWHERE

The larger portent is that the West's share of the world economy is shrinking. Emerging economies are growing much faster than developed ones. They represent 30% of world GDP but 45% of its exports, and they hold 75% of global foreign exchange reserves. Oil threatens to beggar the United States. With the tripling of oil prices, the petro-states will become leviathans.

Six Gulf states—Abu Dhabi, Dubai, Kuwait, Oman, Qatar, and Saudi Arabia -- account for nearly half the world's SWF assets, controlling some $1.7 trillion. The United Arab Emirates' Abu Dhabi Investment Authority alone boats a war chest of $875 billion. A Morgan Stanley economist predicts the combined hoard will grow by about $400 billion annually over the next several years – more if the Saudis unleash a new $500 billion fund they are considering.

The Wall Street Journal says “Saudi Arabia has taken in nearly $900 billion in oil revenues in the last six years”. To get an idea of just how much more money is flowing to the oil-producing countries, the $243 billion they exported in 2000 has soared to $688 billion in 2007, according to Cambridge Energy Research Associates.

That estimate, from last fall, didn't take into account the recent price surge to over $100 a barrel. Morgan Stanley tracks 29 SWFs around the world and estimates their current holdings at $2.9 trillion. But that pales compared with what is to come. The firm estimates that sovereign wealth could be worth $10 trillion by 2012, $12 trillion just three years after that, $17.5 trillion by 10 years hence.

Feeding off America's insatiable need for imported oil, the Gulf countries cannot absorb the wealth they are generating, so we can expect them to go on a buying spree. They will be unstoppable. We are seeing a transfer of wealth of unimagined dimensions from west to east.

And the band plays on. For decades our negligent inattention to the looming problem, our failure to diversify away from oil, has allowed us to become engulfed by this rising tide. With three million manufacturing jobs lost since 2001, are we destined to become a hollowed-out economy, staggering under a $9.2 trillion debt, burdened with a giant military complex keeping the world safe for the rise of new hegemonies?

Perhaps $4.00 a gallon gasoline and economic austerity will finally force Americans to adopt the conservation measures needed to stem the consumerist excess that got us here. Or is it too late?        - SCW

Yet to come in this series: competition for oil, the end of "easy oil", and the peak oil debate.