The Oil Drum: Canada

Thanks for your report and I would like to add a link concerning the transfer of wealth from West to East via the so-called soverign wealth funds. I dont know how this current trend will play out in 2050 but it will affect global balance of power in the shorter term, imo. Perhaps this shift of wealth constitutes an 'unknown unknown' in Rummy parlance?

Widening cracks in the West
GWYN MORGAN

From Monday's Globe and Mail

Read Bio | Latest Columns
November 12, 2007 at 6:04 AM EST

http://www.theglobeandmail.com/servlet/story/RTGAM.20071112.wragendamorg...

'CALGARY — History demonstrates that events that changed the course of human endeavours could have been forecast by a clear-minded analysis of the big picture.

Unfortunately, it's hard to focus on the big picture when we're distracted by disconnected snapshots.

Financial markets, for example, have been battered by the realization that investors couldn't trust the ratings assigned to structured debt securities. Looking back, the warning signs were clear: instant credit approvals on everything from second mortgages to cars to vacations; oversubscribed low-yield debt issues funding highly leveraged takeovers; financial engineering so extreme that investors couldn't discern who they were lending to or for what; and staggering Wall Street bonuses driving even more-extreme schemes.

But a much bigger financial earthquake is reversing the centuries-old dominance of Western-based global economic power. It's an earthquake set off by a combination of petrodollars and trade flows.

More and more of the West's oil supplies are coming from the Middle East and Russia. As oil gushes out of these countries, enormous amounts of petrodollars flow back to their national treasuries. The rise of oil prices to the $100-a-barrel range further accelerates this enormous West to East wealth transfer.'...snip...

' Economists will give you a long and arcane explanation, but the real answer is quite simple. Many of the dollars sent to pay for Middle Eastern oil and Chinese manufactured electronics return through purchases of Treasury bills and all kinds of assets - including the shares of U.S.-based companies and the very real estate that the country is built upon.

The Sheiks, Oligarchs and Indian entrepreneurs are certainly changing the game in global markets, but it's the unprecedented power of government-controlled wealth that is really sounding alarm bells in the U.S. and other Western countries. From Abu Dhabi to Qatar to China, governments are awash in cash. Investment Bankers estimate that the multitrillion-dollar sovereign wealth fund sector is growing by half a trillion dollars a year, while a lot of western countries sink deeper into debt. Few sovereign fund owners are democracies and some can't be considered friends of the West. This has fuelled concern that investment decisions are motivated more by geopolitical power versus normal market considerations. The continuing meltdown of the greenback means the sovereigns get even more for their money, thereby accelerating the process.

Bank of Canada Governor David Dodge recently spoke about the "insufficient transparency" of the sovereigns. U.S. officials have called for international reporting standards. Clay Lowery of the U.S Treasury points out that if the world's Sovereign funds bought all U.S. and European Treasury bond issues they would still have about a billion dollars left in the kitty.'...snip...

'This earthquake is shaking the very poles around which global power rotates.'

Gwyn Morgan is the retired founding CEO of EnCana Corp.