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McGill University
GEOG 216
Julia Freeman

Nov 16 : Oil & debt crises Really shows global economy works around one commodity, oil price shoots up world economy, OPEC, cartel companies are the producers, but biggest consumers are United States and China, middle east controls 60% of production. Lender: chargers the borrower interest on % of the outstanding loan each year (bank) Borrower: pays back part of the money borrowed plus interest Concessional lending: loans at below-market rates of interest or interest-free loans & grants. Foreign direct investment to create infrastructure doesn’t create debt Background  1950s to 1970s (coming out of WW2)  Time of a lot of production and consumption  Start of baby boomers, babies+child=lots of consuming and buying stuff  Lots of economic activity and growth  Western banks, invest little in poorer regions (get “concessional lending”, eg IMF, world bank) (has certain conditions, fixed interest rates)  Wealthy economies amass surplus wealth  Period of buildup of Eurodollars in western European banks Oil price shock  (1970s) OPEC cartel decrease oil supply which lead to an increase in oil prices  Opec stopped cheating on its members, which increased the price  OPEC revenues skyrocketed (petrodollars)  OPEC surplus $$ is deposited within the western banking system or in offshore unregulated bank, US got worried because it was in their currency  Banks needed to find people to borrow money off of Origins of debt  To recycle Eurodollars & petrodollars, bank poured loans into OECD economies  Then banks poured loans into NICS&LICS  Here, some loans are used for necessary imports & economic expansion but  Some is invested poorly, eg military projects & luxury goods  Inflation caused by the interest rate to be low Debt crisis begins  OECD incomes plunge (oil consumers) goes into a recession  Demand is down for exports from NICS&LICS  Aid flows decreases  People start to change th
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