Signs of the Economic Apocalypse, 4-28-08

From SOTT.net:

Gold closed at 889.70 dollars an ounce Friday, down 2.9% from $915.20 for the week. The dollar closed at 0.6398 euros Friday, up 1.2% from 0.6322 at the close of the previous Friday. That put the euro at 1.5630 dollars compared to 1.5817 the week before. Gold in euros would be 569.23 euros an ounce, down 1.6% from 578.62 at the close of the previous week. Oil closed at 118.52 dollars a barrel Friday, up 1.6% from $116.69 for the week. Oil in euros would be 75.83, up 2.8% from 73.78 at the close of the Friday before. The gold/oil ratio closed at 7.51 Friday, down 4.4% from 7.84 for the week. In U.S. stocks, the Dow closed at 12,891.86 Friday, up 0.3% from 12,849.36 at the close of the previous Friday. The NASDAQ closed at 2,422.93 Friday, up 0.8% from 2,402.97 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.87%, up 16 basis points from 3.71 for the week.

Gold has fallen 12% off its high in mid-March -- all this at a time when other commodities have risen sharply. Oil has risen 7.5 percent in the last two weeks. The gold/oil ratio hasn’t been this low since October of 2005. It’s hard to know what to make of this. It may be that gold is behaving more like a currency at the moment than a commodity, but that begs the question of why. But with the average gold/oil ratio since the end of 2004 being 9.04, this may represent a buying opportunity for gold. The fall in gold may be no more than a correction from the peak of $1000 reached in March, with more rises against the dollar and the euro in store. But we may be expecting too much rationality when comparing two of the most manipulated markets there are. The question is how much oil is there really and how much gold is there? Is there enough real gold to cover all the paper gold circulating? Are we running out of oil, or is there much more underground than the oil companies want us to know? Do we already have technology that could generate cheap clean energy that is being suppressed so that profits can be made and social control maintained?

Even if there is much more oil underground than the peak oil proponents say, the oil market may not correct until it becomes clear that the U.S. or Israel won’t attack Iran. It will be hard to get oil out of the ground and processed and shipped in a regional war. Unfortunately, sabre rattling by the U.S. and Israel have increased in the past week. General Petraeus’s elevation to Centcom commander and Hillary Clinton’s threat to “obliterate” Iran doesn’t bode well. It also doesn’t make sense. Why would the United States threaten a regional power that is the only one who could stabilize Iraq enough to allow the U.S. to draw down troops and save the dollar and the American Empire? Why not cut a deal? There are some in the ruling circles who would like to do just that. So why isn’t it happening? Paul Craig Roberts spells it out:

Why Does the Bush Regime Want to Rule Iraq?

Paul Craig Roberts

23/04/08

The Bush regime has quagmired America into a sixth year of war in Afghanistan and Iraq with no end in sight. The cost of these wars of aggression is horrendous. Official U.S. combat casualties stand at 4,538 dead. Officially, 29,780 U.S. troops have been wounded in Iraq.

On April 17, 2008, AP News reported that a new study released by the RAND Corporation concludes that "some 300,000 U.S. troops are suffering from major depression or post-traumatic stress from serving in the wars in Iraq and Afghanistan, and 320,000 received brain injuries."

On April 21, 2008, OpEdNews.com reported that an internal e-mail from Gen. Michael J. Kussman, undersecretary for health at the Veterans Administration, to Ira Katz, head of mental health at the VA, confirms a McClatchy Newspaper report that 126 veterans per week commit suicide. To the extent that the suicides are attributable to the war, more than 500 deaths should be added to the reported combat fatalities each month.

Turning to Iraqi deaths, expert studies support as many as 1.2 million dead Iraqis, almost entirely civilians. Another 2 million Iraqis have fled their country, and there are 2 million displaced Iraqis within Iraq.

Afghan casualties are unknown.

Both Afghanistan and Iraq have suffered unconscionable civilian deaths and damage to housing, infrastructure, and environment. Iraq is afflicted with depleted uranium and open sewers.

Then there are the economic costs to the U.S. Nobel economist Joseph Stiglitz estimates the full cost of the invasion and attempted occupation of Iraq to be between $3 trillion and $5 trillion. The dollar price of oil and gasoline have tripled, and the dollar has lost value against other currencies, declining dramatically even against the lowly Thai baht. Before Bush launched his wars of aggression, one U.S. dollar was worth 45 baht. Today the dollar is only worth 30 baht.The U.S. cannot afford these costs. Prior to his resignation last month, U.S. Comptroller General David Walker reported that the accumulated unfunded liabilities of the U.S. government total $53 trillion.

The U.S. government cannot cover these liabilities. The Bush regime even has to borrow the money from foreigners to pay for its wars in Iraq and Afghanistan. There is no more certain way to bankrupt the country and dethrone the dollar as world reserve currency.

The moral costs are perhaps the highest. All of the deaths, injuries, and economic costs to the U.S. and its victims are due entirely to lies told by the president and vice president of the U.S., by the secretary of defense, the national security adviser, the secretary of state, and, of course, by the media, including the "liberal" New York Times. All of these lies were uttered in behalf of an undeclared agenda. "Our" government has still not told "we the people" the real reasons "our" government invaded Afghanistan and Iraq.

Instead, the American sheeple have accepted a succession of transparent lies: weapons of mass destruction, al-Qaeda connections and complicity in the 9/11 attack, overthrowing a dictator and "bringing democracy" to Iraqis.

The great, moral American people would rather believe government lies than to acknowledge the government's crimes and to hold the government accountable.

There are many effective ways in which a moral people could protest. Consider investors, for example. Clearly Halliburton and military suppliers are cleaning up. Investors flock to the stocks in order to participate in the rise in value from booming profits. But what would a moral people do? Wouldn't they boycott the stocks of the companies that are profiting from the Bush regime's war crimes?

If the U.S. invaded Iraq for any of the succession of reasons the Bush regime has given, why would the U.S. have spent $750 million on a fortress "embassy" with anti-missile systems and its own electricity and water systems spread over 104 acres? No one has ever seen or heard of such an embassy before. Clearly, this "embassy" is constructed as the headquarters of an occupying colonial ruler.

The fact is that Bush invaded Iraq with the intent of turning Iraq into an American colony. The so-called government of Maliki is not a government. Maliki is the well paid front man for U.S. colonial rule. Maliki's government does not exist outside the protected Green Zone, the headquarters of the American occupation.

If colonial rule were not the intent, the U.S. would not be going out of its way to force Sadr's 60,000-man militia into a fight. Sadr is a Shi'ite who is a real Iraqi leader, perhaps the only Iraqi who could end the sectarian conflict and restore some unity to Iraq. As such he is regarded by the Bush regime as a danger to the American puppet Maliki. Unless the U.S. is able to purchase or rig the upcoming Iraqi election, Sadr is likely to emerge as the dominant figure. This would be a highly unfavorable development for the Bush regime's hopes of establishing its colonial rule behind the facade of a Maliki fake democracy. Rather than work with Sadr in order to extract themselves from a quagmire, the Americans will be doing everything possible to assassinate Sadr.

Why does the Bush regime want to rule Iraq? Some speculate that it is a matter of "peak oil." Oil supplies are said to be declining even as demand for oil multiplies from developing countries such as China. According to this argument, the U.S. decided to seize Iraq to ensure its own oil supply.

This explanation is problematic. Most U.S. oil comes from Canada, Mexico, and Venezuela. The best way for the U.S. to ensure its oil supplies would be to protect the dollar's role as world reserve currency. Moreover, $3-5 trillion would have purchased a tremendous amount of oil. Prior to the U.S. invasions, the U.S. oil import bill was running less than $100 billion per year. Even in 2006 total U.S. imports from OPEC countries was $145 billion, and the U.S. trade deficit with OPEC totaled $106 billion. Three trillion dollars could have paid for U.S. oil imports for 30 years; $5 trillion could pay the U.S. oil bill for a half century had the Bush regime preserved a sound dollar.

The more likely explanation for the U.S. invasion of Iraq is the neoconservative Bush regime's commitment to the defense of Israeli territorial expansion. There is no such thing as a neoconservative who is not allied with Israel. Israel hopes to steal all of the West Bank and southern Lebanon for its territorial expansion. An American colonial regime in Iraq not only buttresses Israel from attack, but also can pressure Syria and Iran not to support the Palestinians and Lebanese. The Iraqi war is a war for Israeli territorial expansion. Americans are dying and bleeding to death financially for Israel. Bush's "war on terror" is a hoax that serves to cover U.S. intervention in the Middle East on behalf of "greater Israel."

Roberts’s point of view is that of a U.S. nationalist. The problem for U.S. nationalists is that neither faction in the ruling class is really nationalistic. One side is willing to sacrifice U.S. power for Israel, and the other is willing to sacrifice it for global capitalism. The public in the U.S. is starting to realize that neither faction cares about their welfare at all. If they did, as Roberts argues, they would support a strong dollar. That would also benefit the rest of the world that is stuck with the dollar as a reserve currency, and with dollar holding Americans as customers. By supporting a weak dollar (to bail out financial institutions), they have driven commodity prices higher. Mike Whitney explains how it works:

"A Massacre of the World's Poor:" Food Riots and Speculators

Mike Whitney

April 26 /27, 2008

Food riots have broken out across the globe destabilizing large parts of the developing world. China is experiencing double-digit inflation. Indonesia, Vietnam and India have imposed controls over rice exports. Wheat, corn and soy beans are at record highs and threatening to go higher still. Commodities are up across the board. The World Food Program is warning of widespread famine if the West doesn't provide emergency humanitarian relief. The situation is dire. Venezuelan President Hugo Chavez summed it up like this, "It is a massacre of the world's poor. The problem is not the production of food. It is the economic, social and political model of the world. The capitalist model is in crisis."

Right on, Hugo. There is no shortage of food; it's just the prices that are making food unaffordable. Bernanke's "weak dollar" policy has ignited a wave of speculation in commodities which is pushing prices into the stratosphere. The UN is calling the global food crisis a "silent tsunami", but its more like a flood; the world is awash in increasingly worthless dollars that are making food and raw materials more expensive. Foreign central banks and investors presently hold $6 trillion in dollars and dollar-backed assets, so when the dollar starts to slide, the pain radiates through entire economies. This is especially true in countries where the currency is pegged to the dollar. That's why most of the Gulf States are experiencing runaway inflation.

The US is exporting its inflation by cheapening its currency. Now a field worker in Haiti who earns $2 a day, and spends all of that to feed his family, has to earn twice that amount or eat half as much. That's not a choice a parent wants to make. Its no wonder that six people were killed Port au Prince in the recent food riots. People go crazy when they can't feed their kids.

Food and energy prices are sucking the life out of the global economy. Foreign banks and pension funds are trying to protect their investments by diverting dollars into things that will retain their value. That's why oil is nudging $120 per barrel when it should be in the $70 to $80 range.

According to Tim Evans, energy analyst at Citigroup in New York, “There’s no supply-demand deficit". None. In fact suppliers are expecting an oil surplus by the end of this year.

"The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world’s top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration." ("Bears Baffled by Oil Highs" gregory Meyer, Wall Street Journal)

There's no oil shortage; that's another ruse. Speculators are simply driving up the price of oil to hedge their bets on the falling dollar. What else can they do; put them in the frozen bond market, or the sinking stock market, or the collapsing housing market?

From the Washington Times:

"Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher. Meanwhile, some Americans are stocking up on staples such as rice, flour and oil in anticipation of high prices and shortages spreading from overseas. Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy. Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry." (Patrice Hill, Washington Times)

The Bush administration knows there's hanky-panky going on, but they just look the other way. It's Enron redux, where Ken Lay Inc. scalped the public with utter impunity while regulators sat on the sidelines applauding. Great. Now its the Commodity Futures Trading Commission (CFTC) turn; they're taking a hands-off approach so Wall Street sharpies make a fortune jacking up the price of everything from soda crackers to toilet bowls.

"A hearing Tuesday in Washington before the Commodity Futures Trading Commission starts a new round of scrutiny into the popularity of agricultural futures, once a quieter arena that for years was dominated largely by big producers and consumers of crops and their banks trying to manage price risks. The commission's official stance and that of many of the exchanges, however, is likely to disappoint many consumer groups. The CFTC's economist plans to state at the hearing that the agency doesn't believe financial investors are driving up grain prices. Some grain buyers say speculators' big bets on relatively small grain exchanges, especially recently, are pushing up prices for ordinary consumers." ("Call Goes Out to Rein In Grain Speculators", Ann Davis)

The agency doesn't believe financial investors are driving up grain prices!

In earlier generations, the power of the imperial state and the welfare of the U.S. public were tied together. Nor, in fact, is the strength of U.S. based multinational corporations tied to the welfare of the U.S. people. Max Fraad Wolf details how much what he calls multinational enterprises (MNE’s) now operate and profit largely outside the United States and the EU:

One of today’s great debates involves the presence or absence of coming trauma to developing countries/emerging markets, from US and EU economic pain. I do not share the prevailing wisdom that de-coupling/de-linking will smoothly occur. US and Euro Zone slowing will be global in impact. As has always been true, different states will grow- or shrink- at different rates. What interests me, and I humbly submit should interest you, involves the speed and size of de-linking between the American Macro-Economy and our leading multinational enterprises (MNE). The mirror image of this is the growing link between our MNE and other economies. I believe this relationship has quietly been driving much offshore growth and onshore underperformance. US, Japanese Euro Zone MNE investment, sourcing, growth and operational decision looks to be at the center of a form of de-linking. It is also the core of another form of linkage or coupling. America’s corporate engine is increasingly linked to offshore growth. U.S. firm’s are pulling more weight in the foreign wagon and proportionally less of the wagon here at home.

Political pressures from the rise in food prices point to a weakness of globalization. Asian rice producers have been curtailing exports (see for, example, this) so as not to infuriate their own populations who are facing real difficulty from higher rice and other food prices. The curtailed exports lead to even higher prices, which increases the pressure on other countries to cut exports. The rise in the price of food and energy in the United States is leading to a political crisis there as well, which could lead to the uprising against the globalizing elite and the corporations. Protectionism is rising in the importing countries and nationalism is rising in the exporting countries. The agents and beneficiaries of globalization, the multi-national corporations will face challenges in the new environment, according to Wolf:

MNE [Multinational Enterprises] remain largely based in The US, EU and Japan. These firms face three sets of growing problems. First, there are growing protectionist sentiments around the world. Home markets are full of essential consumers who are angry and blame MNE for weak employment and earnings growth. They will be cutting back their essential spending and may politically oppose international openness. Export host nations are filled with growing nationalism artfully exploited by local politicians and domestic competitors. Profit conditions are under pressure around the world. Resource shortages, basic material price spikes and nationalism are placing great pressure on all net input importers. Rising domestic prices, materials costs and zenophobia rarely advantage far flung MNE operation. Export restrictions and protectionist opposition to imports are mounting simultaneously. All of this is to say, the world is becoming more protectionist just as MNE become more dependent on long and vulnerable supply and demand chains…

Second, rising prices of food and basic materials mean rising wage pressures and capital costs. Rapid currency shifts and input cost increases disrupt and alter price structures and profit expectations. Long deferred wage demands grow as food costs rise, energy costs soar and inflation rises. Low cost labor, cheap materials, free trade and easy credit made for great MNE growth and profit. All these pillars are being rattled. Third, the end of the long credit glut is creating harder to come by and more expensive credit. The next few years will see more cautious financing extended at greater cost. Developed world consumers will be pinched by rising food, energy and currency adjusted costs. Developing world consumers are being pressured by food and energy costs. All are vulnerable to the health of MNE balance sheets.

Proof that the health of the U.S. military empire and of its multinational corporations is not at all tied to the welfare of its people comes with some new statistics on reductions in life expectancy in the U.S. during the neoliberal era.

Declining US life expectancy: a consequence of widening inequality

Naomi Spencer

24 April 2008

In yet another confirmation of the destructive effects of inequality on working-class living standards, a new study documents a significant decline in life expectancy in the US from 1983 to 1999, particularly in persistently poor regions of the country.

“The Reversal of Fortunes: Trends in County Mortality and Cross-County Mortality Disparities in the United States,” was co-authored by researchers from Harvard, University of California and the University of Washington. The research, published April 21, found that life spans have shortened for one in five women in the past three decades, with most deaths attributable to diseases that are preventable through early detection and proper treatment.

By virtually every measure, the health of the poor in the America is worsening. In spite of being the wealthiest country in the world, the US ranks at or near the bottom among industrialized nations for indices such as infant mortality, cancer rates, and heart disease.

Obesity—a factor strongly associated with heart problems, diabetes, osteoarthritis, respiratory problems and some forms of cancer—now affects a third of the population. Morbid obesity is most prevalent in the poorest layers of the population, among whom access to lean and fresh foods is limited by income and region and who must instead depend upon cheap, processed and so-called filler foods, heavy in starch and unhealthy fats. Federal data indicate obesity among both adults and children is worsening.

Rates for fatal staphylococcus infections, autism and Alzheimer’s disease also continue to increase, in the face of declining medical research funding and soaring health costs. In recent years, the country has even seen a resurgence of malaria, cholera, tuberculosis, and other ills that plague developing countries.

The number of Americans without health insurance coverage is approaching a fifth of the population, and the frequency of death from entirely preventable and manageable ailments is rising.

At the same time, life expectancy and medical resources available for the most affluent layer of the population continue to improve.

“The Reversal of Fortunes” study was published on PLoS Medicine, the peer-reviewed open-access web journal of Public Library of Science. Drawing upon four decades of National Center for Health Statistics and federal Census Bureau data, researchers found that overall US life expectancy increased from 1961 to 1999—from 67 to 74 years of age for men, and from 74 to 80 years for women. The period of 1961 to 1983 saw a decline in the death rate that the study attributes to reduced prevalence of preventable diseases, mostly heart disease and stroke.

The largest gains in life expectancy during this period were seen in the poorest regions of the country, reflecting economic gains and the impact of Civil Rights reforms, the establishment of Medicare and programs associated with the “war on poverty” of the 1960s, such as food stamps and the development of regional public health infrastructure in Appalachia.

Beginning in the early 1980s, however, the study noted, “The worst-off counties no longer experienced a fall in death rates, and in a substantial number of counties, mortality actually increased, especially for women.” Between 1983 and 1999, researchers found life expectancy either stagnated or dropped for 4 percent of men and 19 percent of women.

Both male and female life expectancies had a statistically significant decline (in 11 and 180 counties, respectively), averaging a loss of 1.3 years.

According to the study, “This stagnation in the worst-off counties was primarily caused by a slowdown or halt in the reduction of deaths from cardiovascular disease coupled with a moderate rise in a number of other diseases, such as lung cancer, chronic lung disease, and diabetes, in both men and women, and a rise in HIV/AIDS and homicide in men.”

The decline in life expectancy was concentrated overwhelmingly in the Deep South and in counties along the Mississippi River; in the Appalachian region of Kentucky, West Virginia and Tennessee; and in the southern portion of the Midwest and into Texas. From 1983 to 1999, above-average life expectancy increases also became more concentrated geographically in the Northeast and Pacific Coast regions, following the pattern of wealth concentration.

The lowering life expectancy is greatly related to the decline of decent-paying jobs and social infrastructure, tax cuts for the wealthy and subsequent under-funding of welfare provisions under the Republican Reagan and Bush administrations. This trend accelerated in the 1990s under the Democratic Clinton administration with the Personal Responsibility and Work Opportunity Reconciliation Act, which effectively ended welfare as an entitlement program and cut access to public health programs for millions of people.

In nine years following the study’s focus window, all of the precipitating factors of the lower life expectancy have been intensified. Social inequality has never been higher, and medical costs consume an increasing proportion of household incomes. At the same time, employer-paid health insurance programs and millions of decent-paying jobs have been slashed. Many families are priced out of health care altogether.

In fact, the federal Centers for Disease Control reported in December that over 40 million people—nearly one in every five US adults—needed but did not receive medical care, prescription medicines, mental health care, dental care or eyeglasses in 2007 because they could not afford them.

According to the Census Bureau, 47 million Americans are uninsured, up from 40 million in 2001; advocacy group Families USA estimates that nearly 90 million people—nearly a third of the population—were uninsured for at least part of last year. Well over 50 million other lower-income Americans are dependent upon the government-funded Medicaid program.

Moreover, in the face of declining real wages and rising premiums, co-payments, and deductibles, many others who have insurance are deterred from seeking out early and preventive treatment.

As a result, broad layers of the working class look to medical care as an unaffordable luxury and a last resort. Diseases such as cancer and heart disease go undetected until they reach more advanced and less curable stages. According to a 2002 report from the Institute of Medicine, uninsured adults are 25 percent more likely to die prematurely than those with private health insurance, because of the lack of regular preventive care and screenings.

A new, state-by-state analysis of the Institute of Medicine data by Families USA estimated that more than 22,000 adults between the ages of 25 and 64 died because they did not have health insurance.

In Louisiana, for example, Families USA found that two working-age adults died each day—over 4,200 from the years 2000 to 2006—because they lacked health coverage. Over that period, 9,900 uninsured New Yorkers died because of lack of health care. In Texas, an estimated 17,700 died over the period; on average, more than seven working-age Texans died prematurely each day in 2006 because they had no insurance.

“Across the United States, in 2006, twice as many people died from lack of health insurance as died from homicide,” the study concluded.

“The Reversal of Fortunes: Trends in County Mortality and Cross-County Mortality Disparities in the United States” at the Public Library of Science

“Health, United States, 2007” from the CDC’s National Center for Health Statistics

“Dying for Coverage,” March-April 2008, by Families USA

The pot is beginning to boil. For a 360 degree view, see this by sott.net editors. Food shortages, signs of war, popular unrest, earthquakes, and fireballs: everything, not just the economy, seems to be reaching a crisis point.