Monday, June 30, 2008

Signs of the Economic Apocalypse, 6-30-08


Gold closed at 931.30 dollars an ounce Friday, up 3.1% from $903.70 for the week. The dollar closed at 0.6332 euros Friday, down 1.2% from 0.6408 at the close of the previous Friday. That put the euro at 1.5793 dollars compared to 1.5606 the week before. Gold in euros would be 589.69 euros an ounce, up 1.8% from 579.07 at the close of the previous week. Oil closed at 140.21 dollars a barrel Friday, up 3.9% from $134.90 for the week. Oil in euros would be 88.78 euros a barrel, up 2.7% from 86.44 at the close of the Friday before. The gold/oil ratio closed at 6.64 Friday, down 0.9% from 6.70 for the week. In U.S. stocks, the Dow closed at 11,346.51 Friday, down 4.4% from 11,842.69 at the close of the previous Friday. The NASDAQ closed at 2,315.63 Friday, down 3.9% from 2,406.09 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.97%, down 20 basis points from 4.17 for the week.

Since this was the last week of the second quarter, let’s look at the quarterly and year-to-date numbers. Gold fell 0.6% from 936.50 dollars an ounce for the quarter and rose 10.5% from 842.70 for the year. The dollar rose less than 0.1% from 0.6330 euros for the quarter and fell 7.3% from 0.6795 for the year. Gold in euros fell 0.5% from 592.80 an ounce for the quarter and rose 3.0% from 572.64 for the year. Oil rose 33.4% from 105.08 dollars a barrel for the quarter and 45.8% from 96.16 for the year. Oil in euros rose 33.5% from 66.51 euros a barrel for the quarter and 35.9% from 65.34 for the year. The gold/oil ratio fell 34.2% from 8.91 for the quarter and 31.9% from 8.76 for the year. In U.S. stocks, the Dow fell 7.6% from 12,216.40 for the quarter and 17.8% from 13,365.87 for the year. The NASDAQ rose 2.4% from 2,261.18 for the quarter and fell 15.5% from 2,674.46 for the year. In U.S. interest rates the yield on the ten-year U.S. T-note rose 53 basis points from 3.44% for the quarter and fell ten basis points from 4.07% for the year.

Here are some charts tracking changes back through 2005:

Another scary week with oil rising 4% in dollars and the Dow falling almost four and a half percent. As Nouriel Roubini points out, until recently it was possible for some to think that the worst of the financial crisis was past. Now few could say that.

The delusional complacency that the “worst is behind us” is rapidly melting away…and the risk of another run against systemically important broker dealers

Nouriel Roubini

Jun 27, 2008

After the collapse in mid-March of Bear Stearns and the ensuing bailout of Bear’s creditors and the extension of the Fed’s lender of last resort support to systemically important members of the “shadow banking system” (the non-bank broker dealers that are primary dealers) a sense of delusional complacency emerged in financial markets based on fairy tales such as “the worst is behind us”, the “recession will be short and shallow”, that “housing is bottoming out” or even that “we will avoid the recession”. This chorus of cheerleaders included policy makers that had missed the incoming financial tsunami for most of 2007, CEOs and senior financial sector folks who had lost hundreds of billions of dollars with their reckless lending, and investments and a bunch of self serving spin-masters talking non-stop their long books on CNBC and other financial media. This circus of “the worst is behind us” became a pathetic and louder chorus in the two months from mid-March till the end of May. This delusion was for a short couple of months supported by rising stock prices, reduction in credit spreads and interbank spread that, however, remained very high and indicated a persistent liquidity and credit crunch.

But this delusional complacency is now rapidly collapsing as financial markets are back to panic mode. Let’s detail how…

Those of us who had predicted this economics and financial mess (the worst housing bust since the Great Depression, the subprime and mortgage meltdown, the bust of the credit bubble, a nasty liquidity and credit crunch, high and rising oil prices, an ugly recession) well before (in the summer of 2006) 99% of the world had even heard the term “subprime” held to our sound and analytically grounded views that: this would be the housing was not bottoming out, that this would be the worst housing recession since the Great Depression and that home prices would eventually fall 30% plus, that millions of underwater households are at risk of walking away from their homes (“jingle mail”), that the we were in the eye of the financial storm (rather than past it) and this would be the worst U.S. financial crisis since the Great Depression, that credit losses would mount over time well above $1 trillion, that we would have a systemic banking and financial crisis with hundred of institutions going belly up, that the stock market would fall back into serious bear territory after another and last sucker’s rally, that the recession would be deep and protracted (12 to 18 months and U-shaped rather than V-shaped), that the Fed would stay on hold (or even cut rates further by year end) as the economic and financial crisis becomes more severe, that the world would not decouple – financially and/or economically – from the U.S. contraction, that the exchange rate policies of the BW2 countries (partially sterilized intervention creating easy monetary conditions and excessive credit growth) would lead first to asset bubbles and then to rising inflation as the needed real exchange rate appreciation would occur through a rise in prices if the nominal appreciation would be prevented, that BW2 would come under severe strain once this asset bubble would go bust and inflation rose.

Now the delusional complacency in markets is melting away or, better, going bust. With the 3% plus fall in US equity prices on Thursday stock prices are well below their bottoms of mid-march at the peak of the financial panic and back to level not seen since the fall of 2006. Also, credit spreads and interbank spreads are rising again towards their peak levels. Thus, the liquidity and credit crunch is significantly worsening. As argued in this forum the economic contraction would lead to a sharp rise in credit losses well beyond subprime: from subprime to near prime and prime, to commercial real estate, to credit cards, student loans and auto loans, to leveraged loans that financed reckless LBOs, to muni bonds, to further losses from the downgrade of monoline insurers, to industrial and commercial loans, to corporate bonds, to CDS losses.

In February this forum argued that credit losses would be at least $1 trillion. At that time that figure was derided as excessive but by now the IMF says losses will be $945 billion, Goldman Sachs estimates them at $1.1 trillion, George Magnus of UBS estimates them at $1 trillion and the hedge fund manager John Paulson (who made a fortune last year betting against subprime) is estimating them at $1.3 trilliion. Thus, it is now clear that $1 trillion is not a ceiling but rather a floor estimate for what those financial losses will be.

The deleveraging process for the financial system has barely started as most of the writedowns have been for subprime mortgages; the writedowns and/or provisioning for the additional losses have barely started. Thus, hundreds of banks in the U.S. are at risk of collapse. The typical small U.S. Bank (with assets less of $4 billion has 67% of its assets related to real estate; for large banks the figure is 48%. Thus, hundreds of small banks will go belly up as the typical local bank financed the housing, the commercial real estate, the retail boom, the office building of communities where housing is now going bust. Even large regional banks massively exposed to real estate in California, Arizona, Nevada, Florida and other states with a housing boom and now bust will go belly up.

And even large banks and broker dealers are now at risk. After the bailout of Bear Stearns’ creditor and the extension of lender of last resort liquidity support the tail risk of an immediate financial meltdown was reduced as that liquidity support stopped the run on the shadow banking system. Indeed in March we were an epsilon away from such meltdown as – without the Fed actions – you would have had a run not only on Bear but also on Lehman, JP Morgan, Merrill and most of the shadow banking system. This system of non-banks looked in most ways like banks (borrow short/liquid, leverage a lot and lend longer term and illiquid). So the risk of a bank-like run on non-bank (whose base of uninsured wholesale short term creditors/lenders is much more fickle and run trigger-happy – as the Bear episode showed - than the stable base of insured depositors of banks) became massive. Thus, the Fed made its most radical change of monetary policy since the Great Depression extending both lender of last resort support to non-bank systemically important broker dealers (via the PDCF) and becoming a market maker of last resort to banks and non-banks (via the TAF and the TSLF) to avoid a full scale sudden run on the shadow banking system and a sure meltdown of the financial system.

While the tail risk of such a meltdown has now been reduced the view that systemically important broker dealers - that have now access to the TSLF and the PDCF – now don’t risk a panic-triggered run on their liabilities is false; several of them can still collapse and not be rescued. The reasons are as follows: liquidity support by the Fed is warranted for illiquid but solvent institutions but not for insolvent ones; and the risks that some of the major broker dealers may face is not just of illiquidity but also insolvency (Lehman had as much exposure to toxic MBS, CDOs and other risky assets as Bear did). The Fed already tested the limits of legality (as argued by Volcker) in its bailout of Bear’s creditors.

Suppose that a run – triggered by concerns about illiquidity and solvency – occurs against a major broker dealer (say Lehman) would the Fed come to the rescue again? The answer is not sure: such broker dealer has access to the PDCF but sharply borrowing from this facility would signal that the institution may be bleeding liquidity and be in trouble; thus large access to the Fed facility may cause the run on the liabilities of such financial institutions to accelerate rather than ebb. The reason is as follows: if creditors of the broker dealers knew with certainty that the Fed liquidity tab is open and unlimited the existence of the facility would stop the run. But if there is any meaningful probability that the amount that the Fed would be willing to lend to an institutions using that facility is not unlimited and is not unconditional then use of the facility may accelerate the run – as those first in line would have access to the liquidity provided by the Fed lending to the broker dealer in trouble while those waiting may be stuck once the lending stops. This is akin to a currency crisis in a pegged exchange rate regime triggered by a run on the forex reserves of a central bank. Once the reserves are running down and investors expect that the central bank will run out of reserves the run accelerated and the collapse of the peg occurs faster.

So why the Fed would not provide unconditional and unlimited liquidity to a broker dealer in trouble and thus allow the run to occur? Several reasons: the Bear Stearns actions were borderline illegal; the Fed cannot keep on bailing out any major broker dealer in trouble; the Fed may be running out of Treasuries to swap for illiquid/toxic securities; the Fed is starting to face credit risks from swapping and holding toxic assets (the $29 billion given to Bear, the hundreds of billions swapped via the TAF and TSLF); the authorization for the PDCF expires in the fall; the Fed should not bail out – with risks to its own balance sheet institutions that may be insolvent on top of being illiquid.

Thus, the delusion that TSLF and PDCF implies that the risk of a run against systemically important broker dealers is now close to zero is just a delusion. If a run against Lehman or another broker dealer starts again and this broker dealer borrows $5 billion from the Fed and then $10 billion investors and creditors of this institutions – who need to decide whether to pull out or keep their credit lines – will ask themselves whether the Fed would allow this broker dealer to borrow $10 and then $15 and then $20 and then $25 and then $30 billion and then even more. Unless the Fed credibly commits to unconditional and unlimited lending the use of the facility by a broker dealer in trouble may accelerate rather than stop the run on its short term liabilities. Thus, the argument that - in a world where the Fed has extended its lender of last resort support to non-bank financial institutions – the risk of a run against these institutions is now close to zero is flawed.

Certainly the rising financial tsunami ahead as the economic contraction gets worse, the financial/credit losses mount, the credit and liquidity crunch gets worse will test both the ability and the political willingness of the Fed to further bail out major financial institutions that are in serious trouble. So the worst is well ahead of us – not behind us – for the real economy and financial markets.

Commenting on Roubini’s post, David Seaton puts the fear and the rise of oil prices in perspective:

Oil and the mother that bore him

David Seaton

Sunday, June 29, 2008

One of my oldest customers is an energy derivatives brokerage, for whom I provide selections of articles and commentary for their webpage.

Thus, for many years now, every week of the year except August, I have had to read dozens of articles about oil.

I don't consider myself in any way an expert on oil, but I read and have read a lot of experts. I have been following oil since when it was absurdly cheap till now, when it is frighteningly expensive.

I would compare myself to a Moroccan cleaning lady in Madrid's cathedral, I know the difference between a priest a sacristan and a bishop and a cardinal, between a choir boy and an alter boy, but at bottom what they are all doing and why remains a mystery to me and I never forget my granny's words, "Be careful Fatima, they may all seem very nice, but never forget, that when that little bell rings they eat human flesh!".

What have I learned?

First, this is a huge question, it is a perfect example of the blind men feeling their way around an elephant. There are so many factors involved in the price of Oil that chaos theory kicks in rapidly in any analysis. Nobody has the complete picture. In some ways I think even Jim Kunstler is too optimistic, romantic, really.

One thing I am sure of is that future archaeologists digging over our detritus will baptize us the "oil civilization". Our world revolves around oil, first for objective reasons, but then because of its power, magic enters into it too.

There is much argument as to if we are rapidly running out of oil or if there is plenty left. Most of these arguments are magic ones. There are so many sound and reliable experts on either side of the question that I am tempted to say that the "magic quotient" is having a disproportionate effect on the present crisis.

My feeling (this is a blog and not a report) is that what is in crisis at this moment is value itself.

Value is in some sense dissolving and those who hold value are frantically trying to put whatever value they possess somewhere safe. Like a drowning mother throwing her child to a stranger.

This is no longer really about making money, this is about not losing shirts. Oil being the center value of our civilization its paper value is soaring, just as the paper value of gold and wheat. This is not "speculation", this is panic.

With energy and food prices rising rapidly, average people feel the crisis in their gut.

Inflation and job losses keep consumers glum

Burton Friers

Jun 27, 1008

NEW YORK (Reuters) - Consumer confidence fell more than expected in June, hitting another 28-year low as surging prices and mounting job losses contributed to a bleak outlook, according to a survey released on Friday.

The Reuters/University of Michigan Surveys of Consumers said five-year inflation expectations remained steady at the peak of 3.4 percent reached in May, which was the highest in 13 years.

Federal Reserve officials have focused on long-term inflation expectations and the persistence of such pressures heightens their dilemma -- whether to fight price growth or support a weak economy in the grips of the worst housing slump since the Depression of the 1930s.

The Surveys of Consumers said the final June reading for its index of confidence fell to 56.4 from May's 59.8. The report said the pace of consumer spending is likely to sink at least through the start of 2009.

"Moreover, gas prices have risen to an all-time peak, food prices posted the largest increases in decades, home prices have fallen faster than any time since the Great Depression, and there has been widespread distress associated with foreclosures," the report added.

Also weighing on consumers, data earlier this month showed U.S. employers shed jobs for a fifth straight month in May and the unemployment rate jumped to 5.5 percent, its highest in more than 3-1/2 years.

Economists had expected a reading of 57.0, according to a Reuters poll. Their forecasts ranged from 55.9 to 60.0. The final June result is slightly below the preliminary figure of 56.7 released on June 13.

"Overall, no new information, only confirmation of prevailing weak sentiment," analysts at RBS Greenwich Capital said in a note to clients about the report.
Financial markets showed little immediate reaction to the report. Stocks were flat and the dollar was down against the yen . Government bonds were higher on the day…

Should we be so pessimistic? Maybe a change in perspective will help us. A couple of weeks ago we quoted Ran Prieur who said that we should think of “corporate rule” when we hear the term “the economy.” We should interpret “expansion” as a “contraction.” So if we hear that the economy is crashing, we can think that really the rule of psychopathic corporations is crashing.

We're programmed to think of dying as the ultimate worst thing, as the negation of living, when really it's a normal friendly part of living, and what's negating our living is our fear of dying or physical damage. Our culture whips this fear into an insane frenzy, not just to keep us enslaved, but because our culture is an evil mass consciousness, a vampire that cultivates and feeds on our emotional contractiveness.

Our contractiveness is the same thing as our "progress," our descent on engines of disconnection into an artificial hell of computer spreadsheets and tax laws, pavement and cars that turn the grass under your feet into a mile-a-minute green blur, science that turns your view of the sky into mathematical formulas in windowless rooms. But everything that contracts must expand…

I think the next time we expand, we're going to follow through. I suspect that humans are smarter now than ever -- that intelligence is the default human condition, and stupidity has to be manufactured, and our intelligence has been growing stronger and stronger, invisibly staying a step behind advances in stupidity-manufacturing techniques, the same way weeds and bacteria have been growing resistant to high-tech poisons. The controlling interests seem to be winning, but the lid's about to blow off, and when it does, those of us who don't die of starvation or disease will see a blossoming of human power like nothing in history.

Here's what I mean by "human power": Right now if you need a place to live, you can't just find a place and live there, no matter how responsible you are. Places are all "owned," and not by people but by contractive patterns using people, by banks and businesses and money-grasping habits of individuals. You have to apply to these alleged "owners," submit to degrading rituals, accept permission to occupy a place, not change it in any important way, and pay a huge monthly sum of money -- a billion rivers of money running from the poor to the rich. And the only thing you get in return, what you're actually tricked into demanding, is to have your power/responsibility reduced even further by depending on the "owners" to make necessary repairs.

When we get our power back, you'll just pick an appropriate place and live there, and build or maintain shelter that fits the skills of you or your group. And in the transition to this, we'll survive by sleeping on each other's couches, by filling up our houses and learning to live in the same space with other people again instead of buying satanic isolation. We'll turn our lawns into vegetable gardens and feed ourselves with our own hands instead of depending on money and supermarkets. Our alleged poverty will lead us to rebuild community and autonomy that were destroyed by our alleged wealth.

Of course a lot of people will get hurt when something so large falls, but do we really want corporate rule to continue? On the other hand, we shouldn’t just passively wait for the crash to happen. As Franklin Sanders put it, the way to rebuild an economy after it crashes is to rebuild it before it crashes.

If the system that has been in place for a generation is ending, then opposite trends may characterize the next phase. If the last 25 years has seen globalization and the increasing power of multinational corporations, all of which has been dependent of cheap oil and U.S. hegemony, than maybe we will see more localization of economic life. Higher energy and transportation costs and the collapse of the unipolar world of U.S. military predominance should reinforce that trend. Who knows, maybe the trend of increasing social isolation and stress can be reversed. Again, if we are not passive and begin to build newer, more humane and localized economic and social forms perhaps we can lessen the pain of the coming crisis.

David Seaton again:

Once I built a tower, now it's done...

Tuesday, June 24, 2008

"We are so made that we can sustain our existence only in group life. Love is the essence of humanity, love needs something to bestow itself upon; human beings must live together in order to live a life of mutual love." D. T. Suzuki

"I sincerely believe that if you think there's a solution, you're part of the problem. My motto: F*** Hope!" George Carlin

Between the two quotes above there is certainly some space and variance of tone, but they are by no means contradictory and Suzuki would have been the last person to deny George Carlin's Zen.

Carlin was certainly right when he saw "no solution" and "no hope". However, it is useful before even thinking about solutions, to identify the "problem".

In my opinion, the distance between the reality we experience in our daily lives and Suzuki's deceptively simple analysis of our species, (which could, in great part, apply to the troop of baboons in the picture), is humanity's "problem".

In fact the distance is so great that many might dismiss Suzuki's analysis as treacly and sentimental when he says, "we are so made that we can sustain our existence only in group life (...) human beings must live together in order to live a life of mutual love", which, in fact, applies as accurately to any isolated human being as it would to any isolated baboon. A social animal being a social animal.

Over millions of years, our species evolved, like our cousins the baboons, to roam the savannas of Africa in extended families, sharing whatever food we found and curling up together at night to keep warm. Over most of our history that was our life, only of late have we taken a sinister detour. That wandering togetherness is what our brains, inhabiting spirits and digestive tract are built for and look where we are now.

Over a relatively few millennia we have woven ourselves into hell.

Certainly, unless we can recreate the essence of our cooperative origins on a mass scale within our present technological development, there seems to be no solution in sight to this hell we have created.

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Monday, June 23, 2008

Signs of the Economic Apocalypse, 6-23-08


Gold closed at 903.70 dollars an ounce Friday, up 3.5% from $873.10 for the week. The dollar closed at 0.6408 euros Friday, down 1.5% from 0.6502 at the close of the previous Friday. That put the euro at 1.5606 dollars compared to 1.5381 the week before. Gold in euros would be 579.07 euros an ounce, up 2.0% from 567.65 at the close of the previous week. Oil closed at 134.90 dollars a barrel Friday, up four cents from 134.86 for the week. Oil in euros would be 86.44 euros a barrel, down from 87.68 at the close of the Friday before. The gold/oil ratio closed at 6.70, up 3.6% from 6.47 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 11,842.69 Friday, down 3.9% from 12,307.35 at the close of the previous Friday. The NASDAQ closed at 2,406.09 Friday, down 2.0% from 2,454.50 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.17%, down 9 basis points from 4.26 for the week.

Oil prices had been easing back last week until it was revealed that Israel conducted military exercises in preparation for an air attack on Iran. Worked like a charm as oil prices soared Friday closing up slightly for the week. U.S. stock prices plunged on Friday and closed down sharply for the week. The real fear now in the U.S. is that there is no way out of the downward spiral. Rising prices and the falling dollar would normally induce the Fed to raise interest rates but if they did that now to any significant extent it would plunge the economy into a depression.
Price Increases Put Pressure on the Fed

Floyd Norris

June 21, 2008

Inflation is suddenly turning into a worry for the Federal Reserve, which knows that its credibility as a central bank would be damaged if investors concluded it was not determined to combat the recent rise in prices.

It still seems unlikely that the Fed will actually raise rates in an election year when the economy is probably in recession. But the surprisingly strong increases in producer prices for May, reported by the government this week, increased the pressure on the Fed at least to sound tough about inflation.

The report showed that, over all, producer prices of finished goods rose 1.4 percent in May, raising the 12-month increase to 7.2 percent. That annual gain is still smaller than the 7.8 percent increase reported in the year through January, a figure that was the highest in a quarter century.

Not since September 1981, when a severe recession brought on by a large Fed increase in interest rates was beginning to bring down inflation, has the overall producer price inflation rate been that high.

Until recently, the Fed has emphasized the so-called core rate of inflation, which excludes energy and food prices. But in recent speeches, officials have conceded the obvious fact that increases in those prices have been large and serious for many consumers.

The core rate is up 3.0 percent over the last 12 months, well below the overall rate but still higher than at any time in the last 16 years. A Duke University/CFO Magazine poll of chief financial officers released this week found that 45 percent of the American executives said their companies had raised prices to offset their higher energy costs. They now expect their own firms to raise prices by 4.1 percent over the next 12 months — twice the rate they forecast nine months ago.
As yet, however, the price increases are concentrated in some areas. The accompanying charts show that over the last 12 months, the producer prices of grains soared 64.8 percent, but the producer price for livestock edged up just 1.5 percent. Some farmers are selling off cattle quickly, depressing prices, because they cannot afford to feed them…

Every now and then a news story appears that needs no comment and cannot be spun. Friday it was announced that U.S. and British oil companies were awarded no-bid contracts to develop Iraqi oil fields. Given the state of Iraq now, it won’t be easy to bring the oil to market. To the not-quite-victors belong the not-quite spoils:
Deals With Iraq Are Set to Bring Oil Giants Back

Andrew E. Kramer

June 19, 2008

BAGHDAD — Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power.

Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat.

The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations.

The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.

There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry.

Sensitive to the appearance that they were profiting from the war and already under pressure because of record high oil prices, senior officials of two of the companies, speaking only on the condition that they not be identified, said they were helping Iraq rebuild its decrepit oil industry.

For an industry being frozen out of new ventures in the world’s dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity.

While enriched by $140 per barrel oil, the oil majors are also struggling to replace their reserves as ever more of the world’s oil patch becomes off limits. Governments in countries like Bolivia and Venezuela are nationalizing their oil industries or seeking a larger share of the record profits for their national budgets. Russia and Kazakhstan have forced the major companies to renegotiate contracts.

The Iraqi government’s stated goal in inviting back the major companies is to increase oil production by half a million barrels per day by attracting modern technology and expertise to oil fields now desperately short of both. The revenue would be used for reconstruction, although the Iraqi government has had trouble spending the oil revenues it now has, in part because of bureaucratic inefficiency.

For the American government, increasing output in Iraq, as elsewhere, serves the foreign policy goal of increasing oil production globally to alleviate the exceptionally tight supply that is a cause of soaring prices.

The Iraqi Oil Ministry, through a spokesman, said the no-bid contracts were a stop-gap measure to bring modern skills into the fields while the oil law was pending in Parliament.

It said the companies had been chosen because they had been advising the ministry without charge for two years before being awarded the contracts, and because these companies had the needed technology.

A Shell spokeswoman hinted at the kind of work the companies might be engaged in. “We can confirm that we have submitted a conceptual proposal to the Iraqi authorities to minimize current and future gas flaring in the south through gas gathering and utilization,” said the spokeswoman, Marnie Funk. “The contents of the proposal are confidential.”

While small, the deals hold great promise for the companies.

“The bigger prize everybody is waiting for is development of the giant new fields,” Leila Benali, an authority on Middle East oil at Cambridge Energy Research Associates, said in a telephone interview from the firm’s Paris office. The current contracts, she said, are a “foothold” in Iraq for companies striving for these longer-term deals.

Any Western oil official who comes to Iraq would require heavy security, exposing the companies to all the same logistical nightmares that have hampered previous attempts, often undertaken at huge cost, to rebuild Iraq’s oil infrastructure.

And work in the deserts and swamps that contain much of Iraq’s oil reserves would be virtually impossible unless carried out solely by Iraqi subcontractors, who would likely be threatened by insurgents for cooperating with Western companies.

Yet at today’s oil prices, there is no shortage of companies coveting a contract in Iraq. It is not only one of the few countries where oil reserves are up for grabs, but also one of the few that is viewed within the industry as having considerable potential to rapidly increase production…

The New York Times is polite in expressing it’s scepticism, using phrases like “The Iraqi government’s stated goal in inviting back the major companies…” and referring to “suspicion” in the Arab world (just the Arab world?) and describing U.S. officials as “sensitive” to the appearance of profiting from the war. Let’s let Bill Van Auken dispense with the politeness and describe the story for what it is:

Big oil cashes in on Iraq slaughter

Bill Van Auken

20 June 2008

Four major US, British and French oil companies are getting their hands on the petroleum reserves of Iraq for the first time in 36 years, based on no-bid contracts, the New York Times reported Thursday.

These deals reached with the US-backed regime in Baghdad have placed the five-year-old US war of aggression in the clearest possible perspective.

For the thousands of American families who have seen their sons and daughters killed in the Iraq war or return maimed or psychologically damaged, the knowledge that their sacrifices have opened up potentially huge new profit streams for Exxon-Mobil, Shell, British Petroleum and Total will provide cold comfort.

For the over one million Iraqis killed and the millions more turned into refugees or made homeless in their own land, an overriding justification for their suffering has now been laid bare. It was to further enrich the already obscenely wealthy corporate executives and major shareholders of Big Oil.

As the New York Times reported Thursday: “The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations.”

The Times acknowledged that “The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India.”

No-bid deals in the oil sector are not only “unusual,” under conditions in which oil demand is at an all-time high crude is selling for nearly $140 a barrel and energy-producing countries around the world—Russia, Kazakhstan, Venezuela, Bolivia and others—are exerting a tighter national grip over their reserves. Such contracts cannot be explained outside of their being negotiated at the point of a gun.

The deals have been structured as “service agreements” in order to circumvent restrictions that would have ensued under Iraq’s draft oil law, which the Iraqi parliament has proven unable to pass because of both nationalist opposition to foreign exploitation of the country’s reserves and disputes between the federal government and Iraqi regional entities over control of the oil fields.

In reality, however, the two-year deals provide for payment to foreign companies in oil, opening up the possibility of substantial profits. Moreover, as one oil expert commented, they provide the “foothold” for the four major Western companies, paving the way to far more intensive exploitation.

A total of 46 companies, including Lukoil of Russia, China National, India’s major oil company and others had memorandums of understanding with the Iraqi Oil Ministry, according to the Times.

Yet none of them were allowed to bid for contracts. Instead, the deals are being handed over without any competition to Exxon-Mobil, Shell, Total and British Petroleum.

The Times comments, “While the current contracts are unrelated to the companies’ previous work in Iraq, in a twist of corporate history for some of the world’s largest companies, all four oil majors that had lost their concessions in Iraq are now back.”

In a similar vein, US Secretary of State Condoleezza Rice told Fox News: “The United States government has stayed out of the matter of awarding the Iraqi oil contracts. It’s a private sector matter.” However Rice, a former director of Chevron, which is participating in one of the contracts in a consortium with Total, acknowledged that with the new deals “it’s starting to get interesting in Iraq.”

This is all nonsense and lies. The new contracts have everything to do with the role played by these companies decades ago and their determination to wrest back the control they exercised before Iraq nationalized its oil industry and ejected the US and British oil giants in 1972, a move that ushered in a wave of nationalizations throughout the oil-producing countries.

Before then, the Iraq Petroleum Company was dominated by the US and British companies, which controlled three-quarters of the country’s oil production.

Moreover, the US government has worked over decades to re-impose American domination over Iraq, which has the second largest proven oil reserves—115 billion barrels—and the largest unexplored reserves of any country in the world.

The disingenuous explanation given by the US-dominated Iraqi regime—and echoed by the Times—for the supposedly serendipitous return to dominance of the very companies that controlled the country’s oil production 36 years ago is that “they had been advising the ministry without charge.”

Yet, as the Times article notes, Russia’s Lukoil, which had been training Iraqi oil engineers free of charge, is being thrown out of an oilfield where it held a previously signed contract, in order to make way for Chevron and Total.

The reality is that these contracts are the direct product of armed aggression. In the wake of the invasion, US troops seized control of the oilfields and secured the Oil Ministry in Baghdad, even as it left every other governmental and cultural institution to the mercy of the looters. It then selected Phillip Carroll, the former president of Shell Oil, to head up an “advisory board” to assume control over the ministry.

As the Times delicately notes: “It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry.”

The drive by the US government and the oil monopolies to regain their control over Iraq’s oil wealth began well before the Bush administration launched its unprovoked war in March 2003 and constitutes a bipartisan policy that has been pursued by Democratic and Republican administrations alike.

In the wake of the dissolution of the Soviet Union in 1991, the conditions emerged for US imperialism to pursue this strategic aim with continuously escalating violence and aggression.

After Iraq’s infrastructure was shattered in the Persian Gulf War of 1991, the Clinton administration campaigned for punishing United Nations sanctions that choked off essential food and medical supplies and resulted in the loss of hundreds of thousands of additional lives.

The critical strategic aim of these sanctions was to block the resumption of oil production and prevent the realization of contracts signed between the government of Saddam Hussein and foreign rivals of the big US and British companies, particularly Russian and Chinese producers as well as France’s Total.

This was combined with stepped-up military attacks, as the Clinton administration hammered Iraq with cruise missiles in a series of strikes dubbed Operation Phoenix Scorpion, Operation Desert Thunder and Operation Desert Fox, all preludes to the ultimate invasion.

At the same time, Clinton signed into law the “Iraq Liberation Act of 1998,” leveling the charges of “weapons of mass destruction” that would be used to justify war less than three years later and declaring that US policy was “to support efforts to remove the regime headed by Saddam Hussein from power in Iraq.”

With the installation of the Bush administration, preparations for the armed takeover of Iraq began in earnest. Documents released under the Freedom of Information Act from a national energy task force chaired by Vice President Dick Cheney in early 2001 included a map of Iraq’s oilfields and a list of “foreign suitors for Iraqi oilfield contracts.”

The imposition of the contracts for the four big oil firms has confirmed what the Iraq war was about from its conception—well before the September 11, 2001 attacks. The false claims about “weapons of mass destruction” and the invention of ties between Baghdad and Al Qaeda were pretexts for a war aimed at re-establishing semi-colonial control over Iraq and its oil wealth, thereby furthering the US drive for global hegemony.

What is involved is a conspiracy by the government and powerful corporations to foist a war of aggression onto the American people.

Far from provoking outrage or the calls for investigations, however, news of the oil contracts has been met with a deafening silence from the mass media and the political establishment alike. The same television news outlets that trumpeted the Bush administration’s lies about WMD and terrorism passed over the oil deals without a mention.

There is ample evidence that furthering the interests of the oil conglomerates and American imperialism as a whole by continuing the war and occupation in Iraq remains a consensus policy supported by Democrats and Republicans alike.

On the same day that news of the oil contracts broke, the Democratic leadership of the House moved to approve another $165 billion Iraq war funding package, bringing the total amount legislated by Congress to continue a war that is opposed by the overwhelming majority of the American people to over $600 billion.
The 2008 presidential election contest has been presented by the media and the two presidential candidates—Democrat Barack Obama and Republican John McCain—as a choice between a US withdrawal from Iraq or continuing the war until victory.

Yet, the ongoing negotiations over a “Status of Force Agreement,” or SOFA, providing for the long-term presence of US occupation troops in the country has pointed to an underlying agreement on Washington’s future course.

Iraq’s Foreign Minister Hoshyar Zebari, in Washington for the talks on the SOFA, held discussions this week with both McCain and Obama on future US policy in the country.

The Washington Post quoted Zebari Wednesday as saying that Obama had assured him that a Democratic administration would “not take any irresponsible, reckless, sudden decisions or actions.” Obama explained, he said, that he “wants redeployment,” but that he “is not interested to pull all troops out. He wants a residual force” in Iraq to carry out anti-terrorist operations, protect US facilities and train Iraqi security forces.

According to the Post the Iraqi foreign minister concluded that “there was ‘not too much difference’ between Obama’s position and that of the presumptive Republican nominee...”

In other words, both candidates are determined to continue shedding blood—Iraqi and US alike—to advance the cause of securing Iraq’s oil reserves for Exxon-Mobil and the other energy corporations and to create a base of operations for new and even bloodier wars of aggression in the region, including against Iran.

Unfortunately for the people of the Middle East, the invasion of Iraq served the purposes of both Anglo-U.S. imperialism and Zionist imperialism. It is not clear that both elements are in agreement on an attack on Iran. If they were it probably would have happened by now, most likely undertaken by the United States on behalf of Israel. Threatening an attack furthers the interests of the oil companies, though. But since the U.S. military seems to be against expanding the war into Iran, it looks like Israel will take matters into its own hands. This will likely draw the United States into open war with Iran.

Israeli attack on Iran: “not a matter of if, but when”

Stefan Steinberg

20 June 2008

An Israeli military strike is not a matter of if, but when, according to the German magazine Der Spiegel. The latest edition of the news weekly carries a four-page article entitled “Plan to Attack” devoted to preparations currently underway in Israel for air strikes against Iran.

The article begins by noting that the Israeli government has rejected economic sanctions as a means of preventing Iran from developing nuclear weapons. It states that “a broad consensus (in Israel) in favour of a military strike against Tehran’s nuclear facilities — without the Americans, if necessary — is beginning to take shape.”

The main propagandist for a military strike against Iran is the current Israeli Transport Minister and former defence minister Shaul Mofaz, who has been widely quoted as saying that military action against Iran is “unavoidable.” Mofaz first made this remark following recent talks with senior US officials in Washington.

He repeated his comments most recently in an interview with the mass-circulation Yedioth Ahronoth newspaper last Friday. Referring to threats made by the Iranian president Mahmoud Ahmadinejad against Israel, Mofaz declared menacingly that Iran “would disappear before Israel does.”

Mofaz continued: “If Iran continues with its programme for developing nuclear weapons, we will attack it. The sanctions are ineffective... Attacking Iran, in order to stop its nuclear plans, will be unavoidable.”

With his close links to the military establishment, Mofaz is regarded as a “hardliner” on the issue of Iran. Illustrating the “broad consensus” that exists in Israel for a military strike against Iran, Der Spiegel also cites the opinion of Dani Yatom, a retired major general and member of the Israeli parliament for the Labour Party. Yatom declares: “We no longer believe in the effectiveness of sanctions...A military operation is needed if the world wants to stop Iran.”

The article then quotes Israeli historian Benny Morris, who also favours a military solution: “If the issue is whether Israel or Iran should perish, then Iran should perish.”

Der Spiegel concludes: “In truth...there is now a consensus within the Israeli government that an air strike against the Iranian nuclear facilities has become unavoidable.”

Agreement over a military strike against Iran is virtually unanimous in the Israeli cabinet, the article argues. The only outstanding issue is the timing of an attack: “In Israel, it is no longer a matter of whether there will be a military strike, but when.”

According to Der Spiegel: “The doves argue that diplomatic efforts by the United Nations should be allowed to continue until Iran is on the verge of completing the bomb. That way, Israel could at least argue convincingly that all non-military options had been exhausted.

“The hawks, on the other hand, believe time is running out. They stress that there is now a ‘favourable window of opportunity’ that will close with the US presidential election in November, and that Israel can only depend on American support for as long as current US President George W. Bush is still in charge in Washington.”

The report then deals with the feasibility of an Israeli air strike, featuring a map of Iran with potential targets for Israeli aircraft. The article notes that the Israeli air force had already carried out a successful bombing raid against Iraq’s Osirak nuclear reactor in 1981 and more recently in September 2007 destroyed a target identified by Israeli intelligence as a suspect nuclear site in eastern Syria.

Israel recently signed a deal with Washington involving the purchase of F-22 Stealth bombers, which are ideally suited to the type of targeted bombing raids planned by the Israeli air force command. Israel’s existing fleet of F15 jet fighters could also be used to launch a multi-pronged attack on Iranian uranium enrichment facilities.

The article concludes by citing Middle East expert and former CIA agent Bruce Riedel, who declares that while an American president could anticipate opposition to a US-led strike, “the situation is different from Israel’s perspective...There is some risk that Israel thinks it has limited time to act and it has a green light from American politicians.”

Questioned as to the consequences of such an Israeli strike, Riedel stressed that it would be seen as a US attack, and Iranian retaliation would be directed “at both Israel and the US.” The consequences, says Riedel, would be fatal. “We will see a Middle East in flames.”

No wonder oil prices are high even though there is no shortage of oil. This may also help explain the way financial insiders and policymakers have been acting like there is no tomorrow, buying time with short-term steps to keep the financial system afloat for a few more months. Such steps have no hope of longer-term stability (see this interview by Mike Whitney of Michael Hudson). There may well be no tomorrow for the financial system as we have known it. A Middle East in flames, global trade grinding to a halt with food shortages that could make today’s higher food prices seem like a golden age, all this makes those controlling the world economy think they will be able to create the new system. Given what we know about the psychopathic nature of these people, if we let them write the new script it won’t be pretty.

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Monday, June 16, 2008

Signs of the Economic Apocalypse, 6-16-08


Gold closed at 873.10 dollars an ounce Friday, down 3.0% from $899.00 for the week. The dollar closed at 0.6502 euros Friday, up 2.6% from 0.6340 at the close of the previous Friday. That put the euro at 1.5381 dollars compared to 1.5774 the week before. Gold in euros would be 567.65 euros an ounce, down 0.4% from 569.93 at the close of the previous week. Oil closed at 134.86 dollars a barrel Friday, down 2.2% from 137.84 for the week. Oil in euros would be 87.68 euros a barrel, up 0.3% from 87.38 at the close of the Friday before. The gold/oil ratio closed at 6.47, down 0.8% from 6.52 for the week. In U.S. stocks, the Dow closed at 12,307.35 Friday, up 0.8% from 12,209.81 at the close of the previous Friday. The NASDAQ closed at 2,454.50 Friday, down 0.8% from 2,474.56 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.26%, up 35 basis points from 3.91 for the week.

The dollar rebounded last week, gaining 2.6% against the euro. The dollar’s rise was driven by the new higher interest rate policy signalled by the Federal Reserve Board. Traders responded by driving down 10-year T-Notes, raising the yield by 35 basis points. All this is bad news for the real economy in the United States. Rising interest rates will deepen the recession but the inflationary pressures driving the Fed to raise interest rates are stronger than they have been in decades. 1970s stagflation is back with a vengeance. Or, as the ghost of bubbles past, Alan Greenspan, puts it, now that the financial system has been rescued by cheap money, it’s time to turn off the faucet:
Greenspan sees Fed getting tough on inflation

Chris Aspin and Jason Lange

Fri Jun 13, 5:06 PM ET

MEXICO CITY (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed.

Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months.

"If you're going to keep inflation rates down ... the Federal Reserve is going to have to put increasing pressure on the money supply and reserves, and as a result we're going to see interest rates rising," Greenspan said via video link to an event in Mexico.

Soaring gasoline prices helped drive up the U.S. consumer price index in May at the fastest rate in six months, the government said on Friday, although "core" prices, excluding food and energy, remained tame.

Greenspan, who attained cult status for his insight into financial markets as head of the U.S. central bank, said weakness in financial markets probably peaked in March but that it was hard to say how long the crisis would last.

"It can struggle along for a while. It could get worse, it could get better," he said.

Federal Reserve officials have recently harshened their tone about inflation, marking an important shift away from an emphasis on the risk that financial turmoil, tighter credit, and a deep housing contraction could tip the U.S. economy into a deep recession.

Fed Chairman Ben Bernanke, together with other senior Fed officials, said this week the bank was watching for any sign that a self-feeding inflationary psychology could take hold. Past inflation spirals have been fueled by workers asking for big increases in pay.

While the Fed is expected to hold rates steady at its upcoming meeting on June 24-25, financial markets now expect policymakers to raise rates as early as their subsequent meeting on August 5. A signal of their intentions could come when they announce their next decision.

Credit Crisis

The credit crunch, which has infected markets globally, erupted last year when the U.S. subprime mortgage sector melted down.

Banks holding mortgage loans that were repackaged into so called "structured finance" securities have since said that those assets are worth billions of dollars less than previously thought.

Greenspan said the financial market problems could continue until the stated value of those assets fully reflect the fall in house prices in the United States.
"Until prices are clarified ... we will be dealing with a not fully functioning financial intermediary system," he said.

He said that convergence could happen "perhaps by the end of this year but maybe not. It may require some going into next year."

Greenspan said market watchers would know the crisis was coming to an end when the gap between three-month London interbank offered rates, or Libor rates, and Overnight Index Swap rates narrowed to about 50 basis points.

The closely-watched spread -- a key gauge of money market stress -- was around 74 basis points on Friday, its lowest since mid-April. It has been consistently above 70 basis points since mid-March.

"The worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said.

No surprise that Greenspan says that the worst is over if the financial crisis is over. For the rest of us, though, the worst is yet to come. Foreclosures are accelerating in the United States:
US foreclosure filings surge 48 percent in May

Alan Zibel

June 13, 2008

Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's and an adviser to Republican John McCain's presidential campaign, wrote earlier this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes…

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

"I think a lot of people are waiting to see if we really have hit the bottom," Sharga said.

Lehman Brothers economist Michelle Meyer said in a report Thursday that U.S. home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be "feeble."

Consumer sentiment continues to plummet:
U.S. Economy: Consumer Prices Rise, Sentiment Slumps

Shobhana Chandra

June 13 (Bloomberg) -- U.S. consumer prices rose more than forecast in May as record oil prices reduced American confidence to the lowest level since Jimmy Carter was in the White House.

The consumer price index increased 0.6 percent, the most since November, after a 0.2 percent gain the prior month, the Labor Department said today in Washington. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.

The slump in confidence may prevent Federal Reserve officials from rushing to raise interest rates to stem the pick- up in inflation. Most economists anticipate Chairman Ben S. Bernanke and his colleagues will wait until next year to boost borrowing costs, according to a monthly Bloomberg News survey.

"The Fed is in a terrible situation here," Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Television. "We are certainly in a slow period" and "the Fed is talking tough on inflation."

So-called core prices, which exclude food and energy, increased 0.2 percent in May from April, matching economists' forecasts…

With tough times beginning to hit, it may be a good time to step back a bit and look at the big picture. The following essay, written by Ran Prieur in 2002, offers a useful corrective to standard economic journalism.

The Coming Expansion

Ran Prieur

July 29, 2002

When you hear "the economy," think "corporate rule": A strong economy means strong corporate rule; economic collapse means the collapse of corporate rule. It's not exactly true, and it's false in times and places where corporations are not dominant, but right now it comes a lot closer to the truth than the usual background assumption that what's good for "the economy" is good for people.

I know: A good economy means you can get a job, and in a really good economy you can get such a good job that if you work 70 hours a week for years you can buy a nice house in a nice place where you never have to deal with those disturbing poor people who are too lazy to work 70 hours a week, who you never learned to relate to because you're so busy in the economy, and then you can die lonely and bewildered in your big empty secure house.

Doesn't it make you angry that you need "the economy" to have the alleged privilege of doing what someone tells you to do all day so you don't starve and freeze on the streets? Aren't you infuriated by your humiliating dependence on a system that gives you no participation in power? "Live free or die" is easy to say in an imaginary scenario of security agents kicking down your door, but whenever I suggest that economic collapse is a step in the right direction, I'm accused of being anti-human, of wishing for starvation and death, by people who are effectively saying "Please, please, let us live as frightened powerless dependents, anything to not die."

We are in an ugly, awful situation. Better avert your eyes. Here's a nice parable: For countless thousands of years the people of Earthor lived in happy villages, getting everything they needed through small, consent-based communities where everyone was a friend and everything was out in the open. Then they were conquered by evil giants!

Now, everything the people made, every house and every bit of food, was given to the giants, and the giants allocated it to keep themselves in power: the people who obeyed the giants the best, and did their most evil work, got the most stuff; and the people who refused to labor for the giants at all were harassed and isolated and sometimes outright killed; and most people in the middle were kept always wanting more than they got to keep them always busy.

Now one day a hero rose among the people and said, "Let us kill the giants." But then some sensible-sounding voices said, "Without the giants, who will provide our food?" Actually these were people who worked closely with the giants, and knew that if the system changed they would lose all their stuff. But other people listened to the hero, so the giants had to come kill them all, and everything went back to normal, except the giants got even stronger and meaner.

But then another hero appeared, and by this time the people hated the giants so much that the giant-collaborators couldn't stop them, and they did it -- they killed all the giants! But they had been living under the giants for so long now that they didn't know how to live differently. Some people managed to start awkward consent-based villages with tedious "community meetings" ruined by everyone's emotional problems from living under the giants. But these groups fell apart or were taken over, and soon enough, strangely, they all found themselves once again ruled by evil giants. Except now the giants were subtle and persuasive, and the people loved them, or at least they thought a world without giants was grossly unrealistic, and they blamed their unhappiness on other people.

And so it went. But look! The giants cannot stay the same size and survive. To live they must constantly grow. They even have a saying: "Any evil giant that doesn't grow dies." But now they're getting so big that their bulk is all dead bones cracking under their unimaginable weight, so big that they can do nothing but blunder around clumsily, ravenously consuming everything in reach to grow still bigger. And their hunger has turned half the land of Earthor into gray smoky deserts. Anyone who looks can see it coming: The giants are going to run out of food, and die.

What then? Let's return now to the less deeply nested fantastic world of our own Earth. The giant patterns that command our labor under threat of death or prison, that manage and distribute the products of our labor to keep themselves in place, are breaking down. In the last two weeks the price of "stocks" -- tokens of collaboration with the ruling system -- has fallen hard, minus a few temporary half-recoveries caused by covert buying spikes. The "economy" is dying, and anyone who's been looking has seen it coming for years.

The propaganda industry will blame corporate greed, as if this could have been avoided if corporations weren't greedy and fish didn't swim. In fact, collapse is the only possible result of an economy that survives by taking more from its environment than it gives. In this case the environment is not only the Earth, which is running out of "resources," but the human species, which is running out of willingness to participate in a coercive and disempowering system.

I'm not calling for civilization to fall and kill billions of people in ways other than old age, any more than I'm calling for winter to come and kill a lot of plants. I'm just noticing it coming and declaring that it's perfectly natural. Liberals fantasize about a "soft landing," maybe involving a benevolently oppressive global government implementing a hundred years of strict forced contraception and strict forced resource frugality. What's soft about that? It sounds like going into a cold swimming pool slowly and painfully for 20 minutes instead of just jumping in. We're all going to be dead in a hundred years anyway. Let's some of us die young so all of us don't have to live in some eco-puritan dystopia.

I'm not joking -- I'm just refusing to fetishize dying. We're programmed to think of dying as the ultimate worst thing, as the negation of living, when really it's a normal friendly part of living, and what's negating our living is our fear of dying or physical damage. Our culture whips this fear into an insane frenzy, not just to keep us enslaved, but because our culture is an evil mass consciousness, a vampire that cultivates and feeds on our emotional contractiveness.

Our contractiveness is the same thing as our "progress," our descent on engines of disconnection into an artificial hell of computer spreadsheets and tax laws, pavement and cars that turn the grass under your feet into a mile-a-minute green blur, science that turns your view of the sky into mathematical formulas in windowless rooms. But everything that contracts must expand.

The contraction we call the Roman Empire cut down the forests of Europe. When it finally relaxed, the forests grew back, but the people of Europe only grew back a little before they shrank again -- self-sufficient rural communities devolved into feudal estates, which got sucked into larger and larger centralized nation-states, which are now falling into the vortex of the unprecedented power-sucking abilities of global corporations. We're as deep now as we've ever been, and I'm not sure, but I think we're out of room to go deeper, unless they figure out how to trap our consciousness inside computers.

I think the next time we expand, we're going to follow through. I suspect that humans are smarter now than ever -- that intelligence is the default human condition, and stupidity has to be manufactured, and our intelligence has been growing stronger and stronger, invisibly staying a step behind advances in stupidity-manufacturing techniques, the same way weeds and bacteria have been growing resistant to high-tech poisons. The controlling interests seem to be winning, but the lid's about to blow off, and when it does, those of us who don't die of starvation or disease will see a blossoming of human power like nothing in history.

Here's what I mean by "human power": Right now if you need a place to live, you can't just find a place and live there, no matter how responsible you are. Places are all "owned," and not by people but by contractive patterns using people, by banks and businesses and money-grasping habits of individuals. You have to apply to these alleged "owners," submit to degrading rituals, accept permission to occupy a place, not change it in any important way, and pay a huge monthly sum of money -- a billion rivers of money running from the poor to the rich. And the only thing you get in return, what you're actually tricked into demanding, is to have your power/responsibility reduced even further by depending on the "owners" to make necessary repairs.

When we get our power back, you'll just pick an appropriate place and live there, and build or maintain shelter that fits the skills of you or your group. And in the transition to this, we'll survive by sleeping on each other's couches, by filling up our houses and learning to live in the same space with other people again instead of buying satanic isolation. We'll turn our lawns into vegetable gardens and feed ourselves with our own hands instead of depending on money and supermarkets. Our alleged poverty will lead us to rebuild community and autonomy that were destroyed by our alleged wealth.

Link by link, we will stop depending on and answering to higher powers and begin depending on and answering to the lower powers of our bodies and the Earth. The Earth is us too, and when we get our power back, monoculture farms will be set free to be grassland and forest again, in which humans will live in deep and enduring symbiosis. I'm not saying we'll all be hunter/gatherers, but some of us will, and at the very least that economy is the necessary safety net above which we will try other things.

When we get our power back, the homeless / jobless / moneyless will reach a critical mass where the police can no longer stop us and we know it. If an eagle wants more space, it fights a competitor, and typically neither bird is badly hurt, and both have the experience of engaging the world with their energy. This is not “violence” but a vigorous physical way of resolving conflict; it's not about control or extermination but balance. In all the known universe only civilized authorities do not work this way, do not tolerate physically fighting them or running from them, do not give any options but total submission or death. That's why all of us who have not been killed are full of suppressed rage. And if we channel this rage wisely, we will not exterminate the authorities so they can escape and come back in the form of us; we will hold them in the one position they cannot endure, of living as equals with other life, until they dissolve.

Totalitarian control structures are fascinating: The police not only deny us power -- they deny it to themselves, believing that they lack the authority to compromise because they're "just doing their job" for someone else. But if you look up the chain, no one has any power -- even the highest elite are powerlessly following a script written by a financial balance or a country or a warped sense of "order," a program taking control so it can take more control so it can...

This system is an anti-system, a multilevel negation, built of blocks of lack of power, lack of responsibility, lack of awareness. This raises mind-bending questions: How do you destroy a void? And if nobody has any real power, where does the power go?

I think the answer is that power isn't actually being taken but being blocked, in nonhumans by simply killing them and in humans by socialization that begins in infancy, punishing people for having a will of their own, for being aware, for channeling any bottom-up power, until by age 30 most of us are barely alive, almost as Philip K. Dick wrote: "Not a person but a sort of walking, hiding symptom of their way of life."

But blocked power just keeps building up. It wants to flow up through our cells, our muscles, our blood. If we keep holding it back it's going to explode! That's not good. We need to learn to focus it, like a rocket focuses an explosion to push it into orbit, like a plant focuses growth into the roots before the stalk. The famous biblical line is a mistranslation: The word was used to describe good horses, not their submissiveness but their ability to focus their attention and respond instantly to the slightest cues.The disciplined will inherit the Earth.

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Monday, June 09, 2008

Signs of the Economic Apocalypse, 6-9-08


Gold closed at 899.00 dollars an ounce Friday, up 0.8% from $891.50 for the week. The dollar closed at 0.6340 euros Friday, down 1.4% from 0.6430 at the close of the previous Friday. That put the euro at 1.5774 dollars compared to 1.5552 the week before. Gold in euros would be 569.93 euros an ounce, down 1.0% from 573.24 at the close of the previous week. Oil closed at 137.84 dollars a barrel Friday, up 8.0% from $127.59 for the week. Oil in euros would be 87.38 euros a barrel, up 6.5% from 82.04 at the close of the Friday before. The gold/oil ratio closed at 6.52 Friday, down 7.2% from 6.99 for the week. In U.S. stocks, the Dow closed at 12,209.81 Friday, down 3.5% from 12,638.32 at the close of the previous Friday. The NASDAQ closed at 2,474.56 Friday, down 1.9% from 2,522.66 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.91%, down 14 basis points from 4.05 for the week.

The ten-dollar rise in the price of oil on Friday combined with the almost 400 point drop in the Dow has everybody spooked. The U.S. jobs report for May came out showing an alarming drop in jobs. Rising energy and food prices have people frightened and the mainstream media is doing nothing to stop the panic.
Job Losses and Oil Surge Spread Economic Gloom

Peter S. Goodman

June 7, 2008

The unemployment rate surged to 5.5 percent in May from 5 percent — the sharpest monthly spike in 22 years — as the economy lost 49,000 jobs, registering a fifth consecutive month of decline, the Labor Department reported Friday.

The weak jobs report, coupled with a staggering rise in the price of oil — up a record $10.75 a barrel to more than $138 — unleashed a feverish sell-off on Wall Street, sending the Dow Jones industrial average down nearly 400 points. The dollar plunged against several major currencies.

Investors’ recent hopes that the United States might yet skirt a recession sank swiftly in the face of gloomy indications that the economy is gripped by a slowdown and pressured by record fuel prices.

For tens of millions of Americans struggling to pay bills, the jobs report added an official stamp of authority to a dispiriting reality they already know: A deteriorating labor market is eliminating paychecks just as they are needed to compensate for the soaring cost of food and fuel, and as the fall in house prices hacks away at household wealth and access to credit.

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and it’s really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”

…The report fleshed out how economic troubles that began with falling home prices have rippled out to other areas of the economy — to shopping malls, grocery stores and home improvement outlets. As merchants cut payrolls in response to declining business, that takes purchasing power out of the economy, reinforcing a downward spiral of retrenchment.

Professional and business services — which include lawyers, accountants, architects and management consultants — led the way down in May, shedding 39,000 jobs, according to the report. Construction declined by 34,000.

Manufacturing lost 26,000 jobs. Retail payrolls shrank by 27,000 and transportation and warehousing by 10,500. Finance and insurance lost 3,700 jobs, amid continuing worries that more red ink lies in wait for banks.

Here is Newsweek which for years was telling us not to worry:

Why It’s Worse Than You Think

For months, economic Pollyannas have looked beyond the dismal headlines and promised a quick recovery in the second half. They're dead wrong.

Daniel Gross

Jun 7, 2008

The forgettable first half of 2008 is stumbling to a close. On Friday, the Labor Department reported that American employers axed 49,000 jobs in May, the fifth straight month of job losses—an event that signals a recession sure as the glittery ball dropping on Times Square augurs a New Year. The report, which inspired a 394-point decline in the Dow Jones Industrial Average Friday, was the latest in a run of bad news. Auto sales, the largest retailing sector in the U.S., were off 10.7 percent in May from the year before. And housing? Ugh. Nationwide, according to the Case-Shiller Index, home prices in the first quarter fell 14 percent.

Yet hope springs eternal that the second half will be better than the first. Economists polled by the Federal Reserve Bank of Philadelphia in May believe the economy will grow at an annual rate of 1.7 percent and 1.8 percent in the third and fourth quarters, respectively. Lawrence Yun, chief economist at the National Association of Realtors, tells NEWSWEEK that "home sales and prices in most of the country will improve during the second half of 2008." (Yun is the Little Orphan Annie of forecasters. He's always sure the sun will come out tomorrow.) Last month, Treasury Secretary Henry Paulson said, "We expect to see a faster pace of economic growth before the end of the year."

The cause for optimism: the U.S. has called in the economic cavalry, which has responded in textbook fashion. The Federal Reserve has aggressively cut interest rates, bringing the Federal Funds rate down from 5.25 percent last September to 2 percent. Earlier this spring, Congress and President Bush, in a rare moment of bipartisan accord, passed a stimulus package, which will shove nearly $100 billion into the pockets of American consumers by mid-July.

But this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm— a housing and credit crisis, and rising energy and food prices—have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news—a credit crunch and the global commodity boom—are blunting the stimulus efforts. As a result, the consumer-driven economy may not bounce back as rapidly as it did in the fraught months after 9/11.

As it seeks to regain its footing in the second half, the U.S. economy faces two significant obstacles, neither of which was evident in 2001. The first is entirely homegrown: the self-inflicted wounds of the promiscuous extension and abuse of credit in the housing and financial sectors. The second is a global phenomenon that has comparatively little to do with American behavior: rampant inflation in commodities such as oil, food, and steel. These trends have conspired to inflict genuine economic pain and deflate consumer confidence. The Conference Board's Consumer Confidence Index in May slumped to a 16-year low…

Last November, retired school principal Barbara McGeary, 75, of Camp Hill, Pa., switched from a Toyota Rav 4 SUV to a Prius. But the savings she realizes are eaten by a higher food bill. "When I go to the grocery store, I see prices have doubled on some of the things I'm purchasing," she says. Last year she paid $3.99 for a container of about two dozen brownies. Now that they're retailing for $8.49, she bakes her own. McGeary and her husband are also eating at home more than ever. "Restaurants, of course, have had to increase their prices," she says.

While the housing and credit crisis is homegrown, the higher prices for high-octane gasoline and corn chips are effectively imports. Historically, or at least since the end of World War II, if the U.S. sneezed, the world caught a cold. When we used more gas, oil prices rose, and when we used less gas, oil prices fell. As GM vice chairman Bob Lutz points out, "Usually petroleum prices were the first to react to a severe U.S. slowdown." In the past it would have been unthinkable for oil to spike if Americans were cutting back.

Many factors, from a weak dollar to rising speculation, are behind the higher commodity prices. But at root, $4-per-gallon gasoline and $20-per-pound steaks are largely a function of the changing economic geography, and the diminished stature of the U.S. Last January, the talk of the World Economic Forum in Davos (aside from the locale of the Google party) was the prospect of "decoupling"—the notion that India and China could maintain their breakneck economic growth rates even if the U.S. pooped out. Five months later, the global economy seems to have decoupled faster than Jessica Simpson and John Mayer. The world is growing without us. "My impression is that China and India both have sufficient domestic demand-led growth to continue to have vibrant growth even if the U.S. has a sustained period of difficulty," former Treasury secretary Robert Rubin tells NEWSWEEK. Producers of commodities are enjoying the fruits of higher prices. Sorry, Tom Friedman, the world is no longer flat. "It is upside down," says Mohamed El-Erian, co-CEO of bond mutual-fund giant PIMCO. "The growing robustness of the emerging economies enables them to step up to the global plate at a time when the U.S. has to take a breather in order to put its financial house in order." This rampant global economic growth—more people eating better, more people driving, more people using electricity—is translating into higher prices at the Stop & Shop…

Now whenever the mainstream media moves all at once in the same direction, it’s hard not to be suspicious. It may be that they are trying to channel the anger that U.S. citizens are beginning to feel away from Anglo-American capitalism that has left most people at the mercy of the economic elements and towards rivals to the Anglo-American sphere. As the media tries to explain to U.S. citizens why prices are going up in the midst of a bad recession, they are turning to the “decoupling” thesis. That other countries are growing so fast and are so much less dependent on U.S. demand that they can drive prices up even as U.S. consumers have less to spend.
Amid economic slowdown, signs of new world order

Mark Trumbull

Jun 2, 2008

The world economy is cooling this year thanks to a slowdown in the United States, but something new is playing out: This slowdown is serving to amplify a shift in financial power toward Asia and developing nations.

Countries such as China and India are now big enough to help guide the global economy. In the past, a sharp downshift in the US and Europe would decisively slow the rate of global growth.

This time, emerging markets appear poised to grow collectively by 6.7 percent this year, according to recent forecasts by the International Monetary Fund. As a result, the IMF sees world gross domestic product (GDP) growing 3.7 percent, even though the US might experience a recession.

The US economy remains the world's mightiest. But even for Americans, this new economic order has immediate implications:

•Policymakers at the Federal Reserve must worry about upward price pressures for food and fuel – driven largely by rising demand in developing nations. That problem calls for tighter monetary policy, while the domestic consumer slump calls for the opposite policy.

•Demand for US exports from these new markets is providing a helpful cushion for growth, yet trade tensions could be an issue in the US presidential election.

•Money from emerging markets is playing an increasingly important role in the US financial system.

"We have a new pecking order in the world economy in terms of influence on global growth and economic power," says Michael Cosgrove, an economist in Dallas. "[Historically] we would see oil prices fall with a slowdown in the US and Europe…. That no longer holds."

The dynamism of the "BRIC" bloc – Brazil, Russia, India, and China – is not new, but their stunningly rapid rise in this past decade is now being tested in the laboratory of tough times.

For consumers and workers worldwide, what's playing out is a tug of war between two opposing problems.

First is the weakness in the US and some other advanced nations as a housing slump and related credit squeeze hits households. That's dragging GDP growth down on all continents.

Second is inflation, a symptom of the strength of emerging nations. Their demand for commodities explains much of the surge in fuel and food prices worldwide. It's this problem that is, at present, taking center stage as a global worry.

"The good news here is that the standard of living for a lot of people is improving," says Mr. Cosgrove, publisher of the EconoClast newsletter. But for now, "the bad news is that it pushes up prices."

What's changed in the world economy is not just the rate of growth of countries labeled developing or emerging. It's also the size of their economic output.

"What's different this time is that the emerging market economies have been growing so rapidly that they've emerged," says Ed Yardeni, an economic forecaster at Yardeni Research in Great Neck, N.Y. "They've become very large."

Now, these nations are accounting for more than half the world's economic growth in a given year. And, when measured in terms of the domestic purchasing power of their incomes, these countries are also approaching half of global economic output, according to IMF figures.

This makes it a different world from just seven years ago, the last time the US was in a recession. Then, America's nosedive brought global GDP growth down to 2.2 percent in 2001. Considering the expectation that GDP should keep pace with population growth, that was in effect a worldwide recession.

Oil prices were not a concern then. But growth in developing nations fell sharply to 3.8 percent from 5.9 percent in 2000.

This year, by contrast, the IMF forecasts a recession in the US but growth well above 6 percent in developing countries – down just a percentage point from last year.

Recession or not, how the American economy fares depends partly on trends in emerging markets.

One issue is cash supply. Historically, emerging economies are importers of capital. Now, "sovereign wealth funds," investment funds controlled by developing nation governments are helping US banks survive mortgage-related losses. More broadly, nearly half of US capital inflows over the past year and a quarter came from China, Brazil, Mexico, and Russia, according to Bank of America.

Emerging economies are also influencing monetary policy. The Federal Reserve has been lowering interest rates to stave off a banking crisis. But rising commodity prices mean the Fed has to be ready to fight inflation with higher interest rates.

Economists at Merrill Lynch predict that the current global economic cycle hinges on when monetary authorities in creditor nations – many in the developing world – clamp down on inflation.

Other economists caution against viewing emerging economies as being in the driver's seat. "The US is still the biggest by far," says Jay Bryson of Wachovia Corp in Charlotte, N.C.

He predicts that inflation pressures will abate as the world feels the cooling effect of the slowdown in US and Europe.

Developing nations are also trading more than ever, offsetting the US slowdown. But these trade ties are also controversial, especially with China.

A backlash against trade with developing nations is possible in the aftermath of the US election this fall.

It's a thorny political question – how to deal with policies that may not help every worker or that help some nations more than others. "Before, say, 1985, the United States got the majority of the gains from trade" with other nations, says Cosgrove. Since then, he reckons, "the US has a smaller share of the gains from trade."

Trade remains helpful for America and the world, but the danger is that voter psychology is shifting, he says.

In that regard it is interesting that there was coverage of a speech by the president of Russia blaming the U.S. for the economic problems of the world. Are people in the U.S. being prepared for expanded war? Will economic issues replace the worn-out “war on terrorism” as an excuse?
Medvedev puts blame on US for financial crisis

Neil Buckley and Catherine Belton in St Petersburg

Jun 7 2008

Russian president Dmitry Medvedev on Saturday blamed the US and its banks in large part for provoking today's financial crisis - and pushed for a role for Russia in finding a way out of the turmoil.

Mr Medvedev warned that growing "economic egoism" had contributed to global problems including rising food prices, but singled out the US for particular criticism for its role in triggering a global economic slowdown.

"Failure to take proper account of the risks by the biggest financial companies in combination with an aggressive financial policy by the world's biggest economy led not only to corporate losses," Mr Medvedev told the St Petersburg Economic Forum, a showcase for Russia's growing economic clout.

"The majority of people on the planet, unfortunately, have become poorer. And that is noticeable not only in the economies of poorly-developed countries but in the economies of the most advanced states."

The new Russian president's comments echoed in milder form and in the economic sphere the criticisms by his predecessor, Vladimir Putin, of US attempts to dominate world affairs. They were made to thousands of delegates at an event Russia has aggressively promoted in recent years to the point where it rivals the World Economic Forum in Davos in size and its pulling power for senior global executives.

Mr Medvedev said the turmoil provoked by the subprime crisis had exposed the inadequacy of US-dominated international financial institutions to regulate properly today's complex financial markets.

"The inconsistency of the USA's formal role in the world economic system with its real capabilities was one of the central reasons for the current crisis," he said. "However large the American market is and however reliable the American financial system, it is not capable of substituting for global commodity and financial markets."

Mr Medvedev added that it was an "illusion that one country, even the most powerful, can act as a global government".

Carlos Gutierrez, the US commerce secretary who spoke at the forum, said the US had not engaged in "economic egoism" and was a strong believer in free trade.
"Globalisation is in the national interest," he added.

Mr Medvedev repeated calls made by Mr Putin at the same event last year for a reform of financial institutions so they properly reflected the weight of powerful emerging markets. And he said Russia could help resolve today's crisis, noting its recent economic history of decline in the 1990s followed by nine years of recovery meant it had largely avoided the problems of more developed economies.

He called for promotion of Moscow as a financial centre, development of the rouble as a reserve currency, and for acceptance of investment overseas by Russia's emerging corporate heavyweights. He said such investment was "neither speculative nor aggressive".

He proposed Russia should host an international conference of heads of financial companies and leading financial analysts to tackle problems in global markets, which he suggested might become an annual event.

"Russia today is a global player," Mr Medvedev said. "And understanding our responsibility for the fate of the world, we want to take part in the formation of new rules of the game, though not because of often-cited 'imperial ambitions' but because we have the appropriate capabilities and resources".

Some executives said the forum showed Russia was once again becoming a leading economic power.

"Every time you interact with President Medvedev, you can't help coming away with the feeling that Russia's going to play an increasingly important role as an economic and political force and as a leading nation of the world," said Muhtar Kent, president and chief operating officer of the Coca-Cola Company. Mr Kent was among about 90 chief executives who held an hour-long meeting with the Russian president on Saturday evening…

As this plays out it is important to remember that the rise in energy prices may be an artificially induced bubble. As Stef Zucconi puts it:

Peak Oil…


One of those subjects which has the potential to divide Conspiraloons straight down the middle.

There are many loons out there who believe that much of the apparently fascistic, aggressive behaviour of Western governments, especially the US and the UK, is driven by the impending shortfall in global energy supply and the need to find excuses to occupy other countries and to make preparation to clamp down on dissent at home when the lights start going out.

I’m not one of them.

I’m one of those loons who believes that, yes, finite energy resources are an issue but, no, that's not the reason why the price of oil, and food, have been going through the roof recently.

I once worked for a company which traded, amongst other things, cocoa. The firm was a real cocoa trader; buying cocoa from real suppliers, transporting it in real ships and selling it on to real customers. And every now and again, I and half a dozen other people who made a living counting stuff would fly around to take stock of our company’s prodigious physical holdings of the yummy brown stuff. Our firm held onto a ridiculous amount of cocoa – much more than it needed to meet its immediate or even medium term requirements. Some of the stocks were literally years old.

The reason why the firm held onto so much was because, thanks to the involvement of hedge funds and other speculators, the cocoa futures market had become an absolute f*****g joke. It was simply cheaper and less risky to sit on tens of thousands of tons of physical stock rather than expose the company to a market being mugged by characters who were using the futures exchanges as a (rigged) casino.

The futures pricing of cocoa had become, just like the price of oil or wheat today, no more a product of genuine supply/ demand issues than the price of Dutch tulips 400 years ago or Florida real estate every thirty years or so.

And it comes as no surprise that very few people given a mainstream voice are connecting the very close timing of the collapse in property speculation, central banks printing shed loads of lovely inflationary money and the sharp rise in commodities prices.

It shouldn’t be rocket science but the obvious conclusions seem to be beyond the grasp of people who make a living pretending to tell the rest of us what’s going on.

Honourable exceptions include…

· Some bloke writing in The Herald (as one commentator puts it ‘This is dangerously close to real journalism’)...

"What is particularly worrying about this speculative boom is that a number of the big Wall Street banks are up to their oxters in it. Goldman Sachs, for example, which recently forecast that oil would reach $200 a barrel, is heavily involved in the oil futures market. It stands to make a lot of money if its forecast comes true. So do other investment banks. These institutions control billions of dollars of oil contracts, and it takes only a few of the big banks to move in a given direction for the entire market to shift. The extraordinary financial power of the banks is one disturbing aspect of globalisation"

And whilst I do understand why some fellow loons are concerned about future shortages of oil and food I do suggest that they keep their minds open to the possibility that real structural issues are being manipulated and used as Trojan horses to facilitate some serious financial rape and pillage.

Or to quote the big boogeyman being used to scare Americans,
Ahmadinejad says market full of oil, prices artificial

Tue Jun 3, 2008

ROME (Reuters) - The global market is "full of oil" and rising crude prices are being artificially driven by forces trying to further their geopolitical aims, Iranian President Mahmoud Ahmadinejad said on Tuesday.

"While the growth of consumption is lower than that of production and the market is full of oil, prices continue to rise and this situation is completely manipulated," Ahmadinejad said in his address to a U.N. food summit in Rome.

Without naming countries, the Iranian leader said "hidden and unhidden hands are at work to control the prices mendaciously to pursue their political and economic aims."

He said the goal of "powerful and international capitalists" was to keep the price of oil and energy "artificially high" in part to justify new explorations in the North Pole and the deep seas.

In an apparent reference to the United States, he said the international community should have a mechanism to force "the bullying powers to resort to peace and amity instead of occupation and warmongering...."

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