"Under New Management"
by The Zman
"President Trump has wrapped up his trip to Saudi Arabia and the Western media is trying hard to ignore it. The main reason is they hate Trump, of course, but a secondary reason is they do not understand the importance of the trip. To them, it just looks like another foreign trip by a president. In reality it is a glimpse of how the large share owners of America Inc. are restructuring the company. The deals signed in Saudi Arabia are the first step in that restructuring.
For fifty years, the United States and Saudi Arabia had an agreement primarily centered around oil trade and the use of the U.S. dollar. The formal part of the agreement committed the Saudis to investing their profits from energy into U.S. Treasuries in exchange for American military commitments. The result was the Saudis priced everything in dollars, which led all other OPEC members to work in dollars, thus establishing the petrodollar concept.
The reason the dollar is the world’s reserve currency is it is backed with energy, the one thing everyone needs. The gold bugs like to say the dollar is “fiat currency” and is just colorful bits of paper, but that was always false. The dollar, like all real money, represents power. From the 1970’s to the present, the dollar represented the power of the United States and the power of hydrocarbons. Instead of money backed by shiny bits of metal, the dollar was backed by energy.
Another consequence of this arrangement is it provided an unlimited demand for dollar-denominated debt, especially treasuries. Because that debt is created within the American banking system, it made the United States the global bank. In effect, the petrodollar arrangement made the United States the world mint and the world’s banker, with the oil producing countries as the miners. With only one mint, it meant that the United States also controlled the mines.
This system has been under great pressure of late for a few reasons. One is the abuse of the system by the neocons in their foreign policy schemes. No one cared that much about using the financial system against small, nuisance countries like North Korea, but when the system was turned against big countries like Russia, one of the important mints, then people did care. The rise of BRICS as an off-dollar trading system was a response to the abuse of the system.
Another reason for the faltering dollar scheme is the Saudis decided to let the fifty-year-old agreement lapse. One reason for this is the abuse of the system by the neocons during the Biden years. The neocons were deliberately trying to destabilize the region in their war against Russia. This is not what the Saudis want. The other reason is the world is changing, and the Saudis need to adapt. They cannot continue to be a gas station in the desert. They need to diversify.
The biggest reason for the pressure on the petrodollar system is it hollowed out the American economy. It is not just the decline in manufacturing, which gets most of the attention, but also the decline in the nation’s infrastructure. This is becoming acute as the demand for electricity climbs. Artificial Intelligence may be oversold, but it is a real thing that will spike demand for electricity. Without trillions in new investments, the United States will not keep up with the world.
That last bit is the what the Saudi deal addresses. The Saudis are not going to plow their profits into treasuries, but into direct investments in the United States, while the United States provides support for Saudi Defense and infrastructure. This means the Saudis will be investing in American companies that are doing work inside the United States to build factories and infrastructure. The Saudis are not just a mint serving the American bank, but an investor in America Inc.
That is another thing easily missed about this trip. In the past, presidents went to Saudi Arabia to talk about military cooperation and the local politics. Business was delegated to Treasury and Commerce. The Treasury Secretary might make a trip to the region and meet his counterparts to discuss money. When a president visited these countries, money was not on the agenda. It was politics and the military situation in the places where America had stationed soldiers.
Notice on this trip that Scott Bessent was on the trip. Notice also that Bessent turns up in all of these foreign policy events. He led the charge on the so-called mineral deal with the Ukrainians. For the first time in a long time the bankers are now part of the foreign policy discussion. In fact, Bessent is involved in everything. He is part of the effort to root out some of the massive waste in government. What we are seeing is the return of political – economy to America Inc.
For several decades, at least, the managerial class has separated economics from politics, leaving the latter to the elected officials. Economics was too important to let the politicians get involved, so it was handled by experts. The result has been the perversion of economic policy. Instead of economic policy that benefits the people of the nation, we got policy that satisfied the theorists and the tiny minority that was able to arbitrage their access to the experts.
What this trip to Saudi Arabis represents is the return of political-economy where political decisions, including foreign policy, is measured against the standard of the national interests. Trump made that clear in his speech. He declared that foreign policy would no longer be about nation wrecking but about making deals that benefit the American people. Much as economics is being dragged from the abstract to the practical, foreign policy is being brought back to reality.
This trip also symbolizes the return of American Inc. The United States has never been a country in the traditional sense. It was always a business, something like a conglomerate containing many regional companies. The post-Cold War years were a monopoly phase, where managers stopped worrying about profits and focused on pet projects and social schemes. That time is done, and the company needs to be radically reformed to become competitive again.
Like all corporate restructurings, this one will fall far short of the dreams of the reformers, but whatever the result, it must be better than the alternative because the alternative is bankruptcy. In the case of empires, bankruptcy usually ends with the shareholders swinging from trees. The oligarchs of American seem to get this, which is why they are backing Trump and his turnaround team. Time will tell if American Inc. re-emerges as a strong company or a failed experiment."
