US Lends to Brazil to Benefit China

I sure would like to know the rationale behind this “deal” as reported in an article in the WSJ.

The U.S. is going to lend billions of dollars to Brazil’s state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil’s Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil’s planning minister confirmed that White House National Security Adviser James Jones met this month [August 2009]  with Brazilian officials to talk about the loan.

Despite our economic problems at home and an adverse position on drilling for oil off our shores, we are guaranteeing or lending billions to Petrobras, a huge Brazilian-owned oil company. The reason offered is  so that they can drill for oil off their coast. The oil has been committed to China and not us. There are many troubling aspects to this arrangement.

• First, what business does our government have lending money to any corporation, never mind a large foreign corporation? At a time when our industry is starving for capital, we lend to Petrobras. It might make some sense if we were guaranteed a portion of the oil from the field. That apparently is not happening. Supposedly it is going to China.
• Second, it appears as though George Soros is a major shareholder in Petrobras. He also was probably the largest financial backer of the Obama Administration. As unethical as this appears, if we were getting the oil, it might actually have some economic basis other than rewarding a campaign contributor.
• Third, why is the oil going to China? This aspect of the deal is the most troubling of all. Is the US being blackmailed by its largest creditor? Have they told us to do this or else they will stop funding our debt? Or worse, they will start selling Treasuries? I suspect but have no proof that this third factor is pre-eminent with the second not inconsequential.

The fact that we are strapped for cash and unable to finance our own deficits makes this agreement bizarre. It becomes even more so with China flush with cash in the form of International Reserves accumulated via their massive exporting and committing many of them to natural resource acquisitions around the world. This deal would seem to be exactly the type they want to invest in. Yet they didn’t and we did. And apparently China is the beneficiary of the new oil and we are not.

There is no rational economic explanation for this deal other than China is exerting leverage upon us. Either that or we made some deal with China that will require them to buy Treasuries for some additional period.

Either surmise is scary. Both indicate extreme weakness on the part of the US. Are we cutting deals in order to stay afloat financially a bit longer?