Bubble reflation… in oil and food
Most ominous is the fact that by turning real interest rates negative, the Fed has intensified speculation and put energy and food markets under accelerating and boundless rising pressure. Commodity prices have become predictable for even the non-expert; conditional on the Fed’s current stance, pick up any number for oil, $150/bl, $200/bl, $250/bl, and we will be there. Similarly for rice, corn, and wheat. The Fed has made speculation more remunerative, credit riskier, and financial savings less attractive.
Craig:
It is not at all clear to me that there is a speculative oil bubble. Paul Krugman says no, for example.
20 May 2008, 10:38 pmStan:
Krugman is right (that there is no excess oil), and wrong, imo. Supply and demand are operant (and Peak Oil is the background scenery, hello). But a “bubble” is not an excess of the product (as Krugman fallaciously suggests)… it is an excess of money.
Right this minute, there are jillions of dollars, like homeless hordes of birds, looking for someplace to roost or die. The fact that both oil and food (as a consequence of cheap oil) were UNDER-priced all this time, and that they are suddenly taking off, is an irresistable investment attractor…. which may — ironically — lessen the overall impact of the housing bubble explosion… in financial markets. Doesn’t change the fact that we are headed for global stagflation one iota… makes it far worse, in fact, because fuel and food (as commodities) are inescapable necessary as things stand for at least the next 20 years.
I strongly suspect that the reason the Saudis are “refusing” to up production is not anything to do with geopolitics (except tangentially). They CAN’T increase production. I don’t know why people are not just saying this aloud… if it’s wrong, then let’s see the evidence. If Saudis say something like “The Ghawar is past peak,” then investors with begin diversifying out to Russia, Nigeria, Dutch tulips, whatever. Same holds true for stockholders in companies who are invested in Saudi oil… which are now holding companies, and by extension, deriviatives traders. Sticky sticky sticky. Run run run. See Dick and Jane run. See the stocks fall fall fall. Watch the mass of Saudi teenagers revolt revolt revolt. Watch the bombs fall fall fall.
The Fed is intentionally trying to reflate the bubble, using their own blunt instruments, because that is all they know to do right now. The Scylla of hyperinflation is on one side, and Charybdis of negative “growth” on the other… and the Strait of Finance is experiencing an unusually low tide… Bernanke is just heaving whatever weight he can find out of the boat.
This description of bubble reflation is the description of a flail.
21 May 2008, 6:39 amhoward:
The other factor for the Saudis (as I have read recently, but can’t recall where) is that they would have to invest a whole bunch more in new extraction infrastructure to be able to produce more at this time. So why do that when a) the need is right now and the new facilities would take a while to bring on line; b) you don’t know what demand will be like by the time the new facilities are on line; c) you want to prudently leverage your share of a finite resource so as to get optimum return from it.
The Saudis did make reassuring noises several years ago about being able to up production at the drop of a hat, but analysts like Matthew Simmons discounted this as just that - “reassuring noises.”
21 May 2008, 8:04 amr graves:
I’ve been reading Henryk Grossman’s work on accumulation and crisis lately. In the mid 20s, Grossman predicted the Great Depression based on MArx’s theory of the tendency of the falling rate of profit. It would seem based on Grossman’s analysis that increases in the cost of food and energy are the worst possible types of bubbles from the standpoint of further capitalist growth. Capitalist growth is, in essence, according to the labor theory of value, the difference between what the capitalist HAS TO pay the worker to ensure that she shows up rested and fed the next day, and the amount of value that the worker’s labor adds to the raw materials. If the costs of human essentials such as food and fuel increase, then the capitalist must increase wages (or pay workers less than it costs to keep them alive, which is infeasible in the long run), cutting into profits.
21 May 2008, 9:05 amLisa:
http://www.solari.com/blog/?p=818
The Slow Burn
News & Commentary, April 9, 2008 at 12:04 pm
People often ask whether I am concerned about inflation, deflation, peak oil, or a global financial meltdown. My answer is as follows.
The future is something to be created, rather than feared. Allocating our time, networks, and resources to deal with a variety of high-risk scenarios frees us to become proactive and to build positive futures instead of negative ones. I like to understand what these scenarios mean in terms of managing risk and to know how we can succeed within all possible futures.
But my business is investment, not prophecy.
The risk scenario I weight most heavily is not listed above. I call it the “Slow Burn.”
The “slow burn” is a political culture and economy managed through principles of economic warfare in which insiders systematically protect themselves and centralize control and ownership of resources by using:
Central banks
Currency and lending systems
Taxation
Regulatory and enforcement policies
Controlled media and entertainment
Insiders use these means to drain the time, resources, and life of people on the outside. Although insider cartels compete and jockey for power, they are able to settle their squabbles by increasing control and draining everyone and everything else. This is why the bubble economy continues to deplete the real economy. It is likely the reason why Dick Cheney said, “Deficits don’t matter.”
In a slow burn scenario, it is possible to prop up trillions of dollars in financial asset values by systematically arranging subsidies that ultimately liquidate life. This is what “managing” markets really means: de-populating people and places to maintain phony values created and necessitated by derivative bets.
The reason why it is difficult for sophisticated financial people to discern that a slow burn is taking place is because we have not yet collectively mastered the operational detail of how it is implemented. This is an extremely important subject.
One of the most important aspects of the Paulson Plan to re-engineer US financial regulation is the assertion of complete control of payment systems by the Federal Reserve and gaining access to the data of essentially any financial institution. Combined with 1) the ability to print money and 2) digital communication payment and surveillance technology (satellite), this will consolidate greater power into fewer hands than at any time in recorded history.
As Nicholas Negroponte said, “In a digital age, data about money is worth more than money.”
The Paulson Plan and analysis at:
21 May 2008, 10:13 pmhttp://www.solari.com/blog/?p=772
Lisa:
‘Perhaps 60% of today’s oil price is pure speculation’
by F. William Engdahl
http://globalresearch.ca/index.php?context=va&aid=8878
More on the real reason behind high oil prices
21 May 2008, 10:17 pmPart II
by F. William Engdahl
http://globalresearch.ca/index.php?context=va&aid=9042
Lisa:
European Banks Financing Damaging Agrofuels in Latin America
http://globalresearch.ca/index.php?context=va&aid=9018
Cargill: Key Player in Global Food Crisis
http://globalresearch.ca/index.php?context=va&aid=8980
The Food Crisis and Latin America
http://globalresearch.ca/index.php?context=va&aid=8993
Global Famine
21 May 2008, 10:23 pmby Michel Chossudovsky
http://globalresearch.ca/index.php?context=va&aid=8877
Craig:
From ‘Perhaps 60% of today’s oil price is pure speculation’
by F. William Engdahl :
In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.
That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation.
This is a non-sequitur. He’s comparing the strike price in forward contracts to the spot price, and there’s no reason why they should be the same. For the past several years, in fact, the forward price has been less than the spot price, as noted here:
Adding to the puzzle is the fact that the futures price has consistently underpredicted the rise in the price of oil over the past several years. If the futures price reflects mostly the market’s anticipation of the future spot price, how is it that the market has been fooled over and over for so many years?
Note his solution to the puzzle is the weaker dollar.
Additionally, here is video from CNBC yesterday discussing whether there is an oil bubble. The guest, a grandmaster I recognized from my scholastic chess days, makes an argument similar to Krugman. For a bubble, you need large amounts of money buying up oil and profiting from a rise in the asset price, which leads to an increase in the supply.
STAN: Haven’t read Engdahl’s piece, so no comment on that. But no one is claiming this reflation will do anything except make matters far worse. The dot-com bubble was pumped into hundreds of non-profitable enterprises and about a zillion miles of unused fiber-optic cable. The housing reflation went into real estate (and there was some development… but no one made more land). When there are a trillion refugee dollars flying all over the place, rendered (ahem) homeless by the housing bust, they are going to seek some place to land. The rise in oil prices was inevitable. We are quike likely past peak, and the demand continues to grow. That in no way precludes the fact that speculation is also fueling (pun intended) this rise in petroleum prices.
22 May 2008, 9:54 pmCraig:
The housing reflation went into real estate (and there was some development… but no one made more land).
They did build more houses, though, and not just here. There is a national glut of unsold housing inventory, much of it distressed.
The “Giant Pool of Money” has other places to go besides oil. In fact, one of the reasons the real interest rate is negative is the increased demand for U.S. government debt due to its being perceived as safe in an extremely turbulent time.
There can easily be speculation in the future that drives up oil prices, but I don’t believe that is what is happening now.
23 May 2008, 9:57 amJack:
This is really some of the best concise writing I’ve seen on this subject, which I have dubbed Peak Dollar, and sometimes Ponzi dollar.
I love the imagery, Stan,”a trillion refugee dollars flying all over the place, rendered (ahem) homeless by the housing bust, they are going to seek some place to land.” But a problem, the refugee dollars are really tightly controlled by the money elite. Not availabl to you and me. I prefer your first image, “jillions of dollars, like homeless hordes of birds, looking for someplace to roost or die.”
In any case, this is an extremely salient fact– everyone knows that the dollar is a rapidly inflating instrument, so if you have extra dollars, by holding them, you are losing value every day. Because the “fundamentals”– e.g that the US is deeply in debt, that the value of money is based on TRUST, and there is decreasing reason for the worlds’ people to trust Uncle Sam’s dollar– are broke, and the masters of the universe are serial violators of their own rules of economics.
It was once said that 70% of the world’s monetized instruments were in the form of dollars. That stunning amount has probaby receded somewhat these days, as other weak nations, in self defense have to also print more money to keep from being washed away by Hurricane Greenback.
To paraphrase from Lisa’s excellent offering, The toxic bubble economy continues to deplete the real economy. The toxic bubble is not just sucking our juice out, it also poisons us, and the planet. A viral parasitic system with a life of its own.
More top drawer from Lisa: “In a slow burn scenario, it is possible to prop up trillions of dollars in financial asset values by systematically arranging subsidies that ultimately liquidate life. This is what “managing” markets really means: de-populating people and places to maintain phony values created and necessitated by derivative bets.”
I’m not sure about the name, “slow burn”– does this refer to something like boiling a live frog in a pot– he never knows he’s cooked til its too late? I’ll try to write this a bit differently.
Not only do they have the power to create their own money (my PhD econ buddy admits– yes the banks have a license to create money), they also control massive of amounts of weapons, poisons and other deadly materials (coal, uranium). These commodities will also run up, a haven for billions of sinking dollars. For the excess dollars of the elite, not for you and me.
We, the people, have other important investments to make.
WHether the oil producers, esp the Saudis, cannot increase their production (a la Peak Oil) or whether they are happy to leave more in the ground since A] they dont NEED anymore sinking, stinking greenbacks and B] they can always pump it up later, when it will still be very valuable, at least: it leaves Peak Oil a moot point. The result is the same– higher prices for everyone; new lifeways must be developed, or rather enhanced and improved.
All the discussions as to whether or when we have passed Peak Oil are barely germane. But the Peak Oilers have put together a tremendous updated version of important, useful info whose antecedents have been The Whole Earth catalogs, Wendell Berry, Permaculture, Mother Earth News and other worthies.
********************************
I’ve liked William Engdahl’s writing but advise to take him with a grain of salt. Especially for this: he is a believer in “abiotic oil”, oil that is being created today, and that the Russians are drilling in deep holes. I’ve been dubious about this but my pretty brilliant niece (physics and geography) is quite certain that it an incorrect theory.
I think Engdahls geopolitical writing is on the mark.
******************************
Speculation or actual scarcity? Both, the two go hand in hand here. If we have something that is not actually scarce, we can figure out how to make it scarce– buy it up, hold it, buy up futures– thus increasing its value, to our own benefit.
It hardly matters How Much is speculation and How much is actual scarcity. The mechanism and the result are the same.
23 May 2008, 11:10 pmLisa:
Germany in call for ban on oil speculation
by Ambrose Evans-Pritchard
Global Research, May 27, 2008
Telegraph
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
The rest of the article at:
27 May 2008, 1:56 pmhttp://globalresearch.ca/index.php?context=va&aid=9080
DeAnander:
@Lisa this is very interesting — possibly a move towards the “two economies” model practised by various ancient societies? speculation and profiteering were permitted in the realm of luxury goods, but forbidden in the realm of necessities such as food, basic construction materials, etc. in some cases — Andean I think for one, need to check a ref and my books are all in storage argh — two distinct currencies were used to make sure the two economies stayed strictly separate. I am all for a ban on speculation on all essentials, including water, food, fuel, basic fibers, housing, basic transport, basic medicines… if investors want to risk millions on Pet Rocks and the citizens are dopey enough to buy ‘em, let capitalists speculate on Pet Rock futures — and leave wheat, carrots, water and power systems alone…
27 May 2008, 7:40 pmLisa:
Yes, I agree. Profiteering on the essentials of life is basically a form of ilicit behavior, unworthy of good people.
27 May 2008, 7:46 pmStan:
Heya De, get out Hornborg, the chapter entititled “Conceptualizing Accumulation” or the Andean expoerience, and pp. 172-174 for money specificity in the Solomon Islands.
@ all… we pay far to little attention to the subject of money as what AH calls” an ecosemiotic phenomenon.” This is not simply an academically clinical curiosity. It is the tendency of money to become more abstract and less discriminating (more generally acceptable as a medium of exchange) that creates the dilemma of money: it is far more convenient and cosmopolitan in its general-purpose form, and it acts as a solvent that dissolves the bonds of community as well as the bonds between people and their natural environment.
I think the Cubans are experimenting with two currencies now; but there are huge difficulties in overcoming the power of general-purpose money precisely because it is generally available and more convenient… so when difficulties are encountered, people will gravitate to GP$ as the path of least resistance, unaware of and therefore unconcerned with (as they perform personal tempo tasks) the broader “solvent” effect of GP$.
The other tricky thing about money is that is is also a political phenomenon. It is printed and validated by the government as “legal tender,” that is, we have to use that kind of money to pay our taxes. So there is a recurring need for GP$, ie, dollars, that traps people to one extent or another on this politically-monetized matrix.
Local currencies are an effort to break out of this, but the sheer power of GP dollars (resulting from all of the above) is only being confronted then on the basis of space (location), and not use (as suggested above). Uses will trump spaces over time, and the relocalization of moneys will die like isolated embers in the surrounding GP$-wetted ground.
The hypothetical “discriminating” money De hints at above goes more to the point by de-abstracting (specifying) the association between the exchange medium and the things exchanged. The more medium-term political advantage of fighting first for a banon certain speculation, and eventually for two or three separate use-currencies is that these things can be implemented as general policy, immunizing the whole system at once.
Just a few random blips here… this money issue will first require us to give it a lot deeper thought, and eventually to translate those thoughts out into popular discourse.
I am convinced, however, that this topic has the import that De and I ascribed to food as a critical center of praxis.
28 May 2008, 6:10 amDeAnander:
“get out Hornborg” — yeah right… you think I even know which corner of the storage unit that box of books is buried in?
anyway, it was the Hornborg ref I was thinking of, and if you can dredge up a brief excerpt that would be handy.
relocalised currencies so have some staying power even in the flood of solvent global currencies — the Saltspring Dollar for one, still going strong on Saltspring Island, about 2 days lazy sailing South of me. it is so well established that local banks will exchange at an approved rate for Can$. the space/use equation is more interdependent than you might think; merchants who accept SS$ tend to be local producers (farmers, artisans) so there is some gravitation of SS$ to food products and handmade artifacts, whereas Can$ are used for chain stores carrying products from far away, industrial products, etc.
I could imagine two economies both with global currencies — the biotic or necessities economy, and the industrial or luxury economy. but one of the preconditions for any sane system of trade, currency, and value — before we can even get started thinking about units and rules — is to abandon the capitalist fiction of “creating value” (we don’t), and the even more pernicious fiction of compound interest with its requirement for geometric growth. and the two currencies have to be kept miles apart — a currency that permits speculation can’t be allowed to convert back into the baseline currency of necessity. no one should be able to buy up the entire country’s grain supply, in other words, even if we don’t mind his cornering the market in Pet Rocks.
any currency that made sense would have to use as its base unit some combination of energy and time, i.e. kilocalories or whatever unit we prefer, plus the ratio of regeneration time to consumption time… what I means is that board-feet of a tree that takes 500 years to reach maturity should be hellaciously “expensive” because they are hellaciously expensive in biotic investment, but board-feet of something fast growing like bamboo should be cheap. also, anything that takes a lot of resources (water, energy, biomass, human labour) to produce should be more expensive than the result of a more frugal process. in theory “markets” ensure this by the mechanism of production cost and profit margin, but as we know in practise there are many way to cheat — like substituting fossil energy and synthetic petro-based products for liquidated biota and human labour…
this would put a brake — maybe — on the practise of looting slow-growing, high-value biotic products in an orgy of liquidation: making old growth wood “affordable to the masses” is planetary suicide. some things really should be expensive… then we have the problem of allocation of the expensive luxury resources, and our traditional approaches to this are (a) restrict their use to an elite or aristocracy, (b) restrict their use to religious/ceremonial applications, (c) restrict their use to State monuments and public buildings. all variations on the same theme really, with (c) being a bit more democratic. a far better option might be (d) just leave them alone, don’t cut the damn tree down in the first place, leave the gold in the ground. some indigenous cultures have achieved the (d) option by means of religious kapu and tradition (of the kind so loftily sneered at by modern Enlightenmentistas who feel sorry for the poor benighted heathen struggling under the bonds of superstition). given the success of those indigenous cultures in existing w/in the solar budget of their local ecosystems for millennia, while the “rational” Western whiteboys have managed to bring the human race very close to the edge of cascading global catastrophe w/in a mere 600 years or so of imposing “their way” on the world…. well, we won’t live to see who looks smarter in another 400 years, but I have my suspicions.
28 May 2008, 11:31 amLisa:
Destroying African Agriculture
by Walden Bello
http://globalresearch.ca/index.php?context=va&aid=9196
The Global Crisis: Food, Water and Fuel. Three Fundamental Necessities of Life in Jeopardy
by Michel Chossudovsky
http://globalresearch.ca/index.php?context=va&aid=9191
Global Warming: Facts and Factoids
by Geraldo Luís Lino
http://globalresearch.ca/index.php?context=va&aid=9199
5 June 2008, 10:31 amStan:
Henry Liu said late last year, “The Fed has a choice of accepting an economic depression to cut off stagflation, or ushering hyperinflation by flooding the market with unproductive liquidity.”
Here are today’s financial headlines:
http://www.reuters.com/article/usMktRpt/idUSN0637656920080606
http://www.reuters.com/article/topNews/idUSL2919879920080607
7 June 2008, 1:59 pmStan:
FULL
More on the CPI
9 June 2008, 11:37 amSandy:
An elusive ocean of crude
Two miles below North American wheat fields is an area that could rival Saudi Arabia
http://www.chron.com/disp/story.mpl/headline/biz/5824026.html
10 June 2008, 9:59 amLisa:
The Geopolitics of $130 Oil
May 27, 2008 | 1913 GMT
By George Friedman
Oil prices have risen dramatically over the past year. When they passed $100 a barrel, they hit new heights, expressed in dollars adjusted for inflation. As they passed $120 a barrel, they clearly began to have global impact. Recently, we have seen startling rises in the price of food, particularly grains. Apart from higher prices, there have been disruptions in the availability of food as governments limit food exports and as hoarding increases in anticipation of even higher prices.
Oil and food differ from other commodities in that they are indispensable for the functioning of society. Food obviously is the more immediately essential. Food shortages can trigger social and political instability with startling swiftness. It does not take long to starve to death. Oil has a less-immediate — but perhaps broader — impact. Everything, including growing and marketing food, depends on energy; and oil is the world’s primary source of energy, particularly in transportation. Oil and grains — where the shortages hit hardest — are not merely strategic commodities. They are geopolitical commodities. All nations require them, and a shift in the price or availability of either triggers shifts in relationships within and among nations.
Read the rest at:
http://www.stratfor.com/weekly/geopolitics_130_oil
13 June 2008, 12:34 amSandy:
Here’s a debatable point of view:
Are They Really Oil Wars?
By Ismael Hossein-zadeh
18/06/08 “ICH” — – A most widely-cited factor behind the recent U.S. wars of choice is said to be oil. “No Blood for Oil” has been a rallying cry for most of the opponents of the war. While some of these opponents argue that the war is driven by the U.S. desire for cheap oil, others claim that it is prompted by big oil’s wish for high oil prices and profits. Interestingly, most antiwar forces use both claims interchangeably without paying attention to the fact that they are diametrically-opposed assertions.
Not only do the two arguments contradict each other, but each argument is also wanting and unconvincing on its own grounds; not because the U.S. does not wish for cheap oil, or because Big Oil does not desire higher oil prices, but because war is no longer the way to control or gain access to energy resources. Colonial-type occupation or direct control of energy resources is no longer efficient or economical and has, therefore, been abandoned for more than four decades.
The view that recent U.S. military adventures in the Middle East and the broader Central Asia are driven by energy considerations is further reinforced by the dubious theory of Peak Oil, which maintains that, having peaked, world oil resources are now dwindling and that, therefore, war power and military strength are key to access or control of the shrinking energy resources.
In this study I will first argue that the Peak Oil theory is unscientific, unrealistic, and perhaps even fraudulent. I will then show that war and military force are no longer the necessary or appropriate means to gain access to sources of energy, and that resorting to military measures can, indeed, lead to costly, not cheap, oil. Next, I will demonstrate that, despite the lucrative spoils of war resulting from high oil prices and profits, Big Oil prefers peace and stability, not war and geopolitical turbulence, in global energy markets. Finally, I will argue a case that behind the drive to war and military adventures in the Middle East lie some powerful special interests (vested in war, militarism, and geopolitical concerns of Israel) that use oil as an issue of “national interest”—as a façade or pretext—in order to justify military adventures to derive high dividends, both economic and geopolitical, from war.
Read the rest at:
http://www.informationclearinghouse.info/article20119.htm
STAN: No time now to respond, but one skim and I’ve found this article packed with misdirections of its own.
18 June 2008, 7:52 pmJim:
I sent this article to Richard Heinberg, who replied,
“This author’s analysis is wrong on virtually every count. It would of course be good for someone to write in and correct the record, but that would be impossible for me, as I am hard at work on my next book–and that is a much more important use of my time, I think. His arguments against peak oil are easily and thoroughly dealt with by the existing peak oil literature, with which the writer seems almost completely unfamiliar. Sad…”
19 June 2008, 12:26 pmRobert Karaffa:
How many bases would be built, and where, if an unlimited budget were provided? Where was the largest base built between the time of the Vietnam war and the invasion of Iraq? How close is that base (Bondsteel/Kosovo) to the Caspian pipelines? Why do we now have AFRICOM? Why is the chemical haze from drilling so bad in parts of rural Wyoming now that the air could qualify for urban smog alerts? Why are we now once again gainfully discussing the mineral exploitation of the Kaiparowits Plateau? Why is 3/4 of the small amount of planned increased refinery capacity for oil in the US dedicated to heavy oil not light sweet.
Though the topic of peak oil is rarely mentioned in mainstream media here, stories related all of these questions can easily be found. When these questions are answered or merely pondered, one is lead to the conclusion that to deny peak is to bury one’s head in the (tar) sand.
19 June 2008, 2:49 pmCraig:
Re: “Are They Really Oil Wars?”
I’m agnostic on the question of Peak Oil, but even still, this is not very well argued. His first argument, for example, is that “(Peak Oil Theory) discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) the efficiency of oil consumption.” This isn’t even an argument against Peak Oil, because you can have a decrease in oil consumption, or, to take his example, a decrease in the rate of increase in oil consumption, with or without Peak Oil.
As another example, he cites the dubious claim made by Engdahl that 60% of oil price is speculation, while at the same time he says there’s no distortion between supply and demand, which is an argument against speculation distorting oil prices.
Finally, I’ll also just throw out that this piece reeks of anti-Semitism.
19 June 2008, 7:29 pmPaulHunt:
I personally believe in peak oil and that it is here. But there are other factors to consider when talking about the subject, in terms of our world economy. While oil is a main ingredient in running nearly everything. There are still other factors. This article I was reading explains this idea. Its called Energy Q&A Part I: Peak Oil and Oil Price Spikes and really gave me a better idea what peak oil really means. Its more than just what what peak oil, the issue is what it means for the world. Check it out. Thanks!
20 June 2008, 12:59 pmJonathan:
William Engdahl, who is quoted as saying that 60% of oil price is speculation, believes that oil is some kind of primordial substance that was not formed from biotic life. (which most scientists disagree with). I heard a guy from Morgan Stanley on Charlie Rose say speculation might account for 1 or 2%. Not exactly a trustworthy source in my book but it goes to cast doubt that high oil prices are all from speculation.
The point I think that gets confused when talking about “peak oil” is the time at which half the world’s oil supply is gone isn’t that important in a certain sense. Its the fact that the oil that is left is getting more and more expensive to get. The days are over when you can just shoot your rifle at the ground and the texas tea starts spurting out of the ground.
Sure, some oil companies are coming up with all these new technological ways of finding and pumping the oil, but that means a whole lot of money to spend to get more out of less. If you are an oil company and already making billions of dollars just laying in the cut, why risk a bunch of money for increasingly smaller payoffs?
That is just a small piece of what needs unraveled in this article.
20 June 2008, 3:29 pmSeer:
First, to clarify what Peak Oil really means… It means the maximum production output of oil over a set period of time.
There are two further points of concern: 1) will peak production stay on a plateau for an extended period of time?; or 2) will peak production see a rapid fall off, indicating a decline?
To further complicate this there’s the issue of growth, which translates to a per-capita output/consumption concern.
In the high growth world that we’re living in I don’t believe that any plateau scenario is going to happen. Maybe someone can point out when this has happened, but none of the history that I am aware of has any reasonable example of this happening, especially with the scale that we’re now talking about.
Peak production followed by a rapid fall off could be attributed to plain old instability, such as the 1970s oil embargo, a political manifestation; or, it could be the result of actual physical reserves being sufficiently depleted. In the case of the later, actual depletion, it will soon resemble the former, with increased instability resulting in less oil being available to importing countries: a slow decline doesn’t look all that likely.
It is my belief that the anticipation of peak oil will result in peak oil-like actions, and that’s what I believe we’re currently seeing. This will result in diminished exports as oil exporting nations look to protect their dwindling resources. Importing nations will see the down curve much more clearly. This is summed up pretty well in the following article:
http://www.rgemonitor.com/globalmacro-monitor/252705/the_world_changed_last_week_with_no_headlines_to_mark_the_news
NOTE: WAY before reading this article I had offered (not here, but in my various discourses elsewhere) that we’d FEEL peak oil some time before real peak oil occurred. And in a sense, then, true peak oil is really immaterial. And no, there is no significantly meaningful substitute (no abiotic, no hydrogen salvation, no “hidden” oil fields).
Not that long ago people in the US were spending almost 40% of their income on food. We can point fingers at “speculators” and other demons, but the fact of the matter is that this oil-run world is starting to wind down, our “future” ain’t what we’d led ourselves to believe it would be: infinite growth isn’t possible! The “American Dream” was just that, a dream…
Seer
20 June 2008, 11:20 pmLisa:
Two important new articles:
Two Federal Agencies Are Culpable in Oil Price Manipulations
A Secret Oil Gusher Inside Citigroup
By PAM MARTENS
If you want to flush out market manipulation, don’t turn to the sleuths in Congress. They’ve been probing trading of the oil markets for two years and completely missed a company at the center of the action. During that period, a barrel of crude oil has risen from $50 to $140, leaving a wide swatch of Americans facing a choice this coming winter of buying food or paying their heating bill.
http://counterpunch.com/martens06212008.html
—————————————————-
An Interview with Michael Hudson on the Economy
The Game is Over. There Won’t be a Rebound
By MIKE WHITNEY
http://counterpunch.com/whitney06212008.html
21 June 2008, 1:08 pmGraeme:
Engdahl is very fringe when it comes to oil production. There is no direct evidence offered in the article “60% of oil prices..” - only conjecture. While like another contributor to the discussion I respect his opinion and analysis of geopolitical issues, his opinions about oil production rates are not factually based. While speculation does drive a component of the index price for crude, market fundamentals are the main driver. Speculators need to balance their positions at the end of the trading period so that they don’t need to take delivery of 500 barrels of crude. This requires them to essentially “sell” the same amont of oil that they bought. What we would expect then is a dramatic decrease in the price of the near month contract at the end of the trading period as speculators rushed to get out of thier positions. This price drop does usually occur, however as a percentage of the near month contract it’s more like 4% not 60%.
21 June 2008, 10:19 pmJPaul:
Here is a pretty good demolition of the “abiotic oil” theory. I might add the observation that, even if the idea were true, it is the rate at which such “upwelling” occurs that is the only factor that matters in whether abiotic oil is relevant to the current energy crisis. Haven’t really seen much hard data from these people on this point, just the old chestnut about “Eugene Island 330.” The fact that people like Alex Jones and George Noorey take the idea seriously is a big red flag, as far as I’m concerned.
Dmitri Orlov has some interesting observations about the money/energy question. Here he demolishes the conceits of “free market” zealots who insist that the “laws of economics” are the prime determinant of economic growth, and that the question of inputs to the economic system is of little import (after all, when the price of oil gets high enough, we’ll just switch to “something else.” Right?). The writings of Dmitri Podborits on money and energy are also well worth your time (A lot of Russians on the case. Could it be that they have first hand knowledge of the causes/consequences of economic collapse? Hmmmm?).
I’m in the camp (if, in fact, there is one) that scorns the idea that “economic law” and “markets” and, indeed, money and finance have primacy (or even much relevance) in the question of long-term human survival on this planet. You see, kids, there are these things called the “laws of thermodynamics,” which, along with certain laws of ecology. They are, I believe, what really govern the show. John Michael Greer has a couple of interesting articles (”Civilization and Succession” and “Fermi’s Paradox” in the link provided), that expand on this point.
My degree is in biotechnology, the study of which involved a lot of monitoring of flasks and dishes full of dividing bacteria, and the construction of growth curves, etc. describing the, well, rise and fall of civilizations in miniature. Ten years or so ago, I would have rebelled at the notion that the sigmoid curve of resource depletion and population death applies to us, just as with all extant biological species. After watching the events of the last few years, though, I have given up this belief as delusional. I think we are, all of us, going to be doing a lot of that over the next few years.
22 June 2008, 2:13 amJPaul:
In paragraph three of the above, I think I meant to say something like “which, along with certain laws of ecology, are what really govern the show.” Although, at this hour, who can really say?
22 June 2008, 2:28 amLisa:
Published on Friday, June 20, 2008 by The Nation
Anatomy of a Price Surge
by Michael T. Klare
As the pain induced by higher oil prices spreads to an ever growing share of the American (and world) population, pundits and politicians have been quick to blame assorted villains — greedy oil companies, heartless commodity speculators and OPEC. It’s true that each of these parties has contributed to and benefited from the steep run-up. But the sharp growth in petroleum costs is due far more to a combination of soaring international demand and slackening supply — compounded by the ruinous policies of the Bush Administration — than to the behavior of those other actors.
http://www.commondreams.org/archive/2008/06/20/9777/
22 June 2008, 12:34 pmLisa:
Three more article on oil:
The US and China Are Over a Barrel
In the costly competition for oil, cooperation is the wisest course.
by Michael T. Klare
http://www.commondreams.org/archive/2008/04/28/8577/
—————————–
Tomgram: Michael Klare, America Out of Gas
http://www.tomdispatch.com/post/174929
—————————-
AFRI(OIL)COM
Will the next war for oil be in Africa?
by Antonia Juhasz
http://www.commondreams.org/archive/2008/06/18/9724/
22 June 2008, 1:11 pmLisa:
These Wars Are About Oil, Not Democracy
by Eric Margolis
The ugly truth behind the Iraq and Afghanistan wars finally has emerged.
Four major western oil companies, Exxon Mobil, Shell, BP and Total are about to sign U.S.-brokered no-bid contracts to begin exploiting Iraq’s oil fields. Saddam Hussein had kicked these firms out three decades ago when he nationalized Iraq’s oil industry. The U.S.-installed Baghdad regime is welcoming them back.
Iraq is getting back the same oil companies that used to exploit it when it was a British colony.
http://www.torontosun.com/News/Columnists/Margolis_Eric/2008/06/22/5953041-sun.php
23 June 2008, 9:21 amLisa:
Ex-British Army Chief in Iraq Confirms Peak Oil as Motive for War; Praises Fraudulent Reconstruction Programmes
By Nafeez Mosaddeq
(Nafeez Mosaddeq Ahmed) — Brigadier-General James Ellery CBE, the Foreign Office’s Senior Adviser to the Coalition Provisional Authority in Baghdad since 2003, confirmed the critical role of Iraqi oil reserves in potentially alleviating a “world shortage” of conventional oil. The Iraq War has helped to head off what Brigadier Ellery described as “the tide of Easternisation” – a shift in global political and economic power toward China and India, to whom goes “two thirds of the Middle East’s oil.”
Full article at:
http://www.inteldaily.com/?c=173&a=7129
23 June 2008, 11:46 amLisa:
une 24, 2008
Don’t Blame the Saudis
Gas Price Gouging
By MIKE WHITNEY
Don’t Blame the Saudis
Gas Price Gouging
By MIKE WHITNEY
“I’ve seen this bad movie before. It’s the Enron movie, which hit the West Coast power-markets like a bomb because the federal government was asleep at the switch. Now it’s happening again with oil prices.”
–Rep. Jay Inslee, D-WA
There is no oil shortage, not yet at least. The reason oil has skyrocketed to nearly $140 per barrel is because of rampant speculation. The peak oil doom-sayers are simply confusing the issue. This is not about shortages or scarcity; it’s about gaming the system to fatten the bottom line. The whole scam is being executed by the same carpetbagging scoundrels who engineered the subprime fiasco; the investment bankers. The Wall Street Goliaths are using the futures market to recapitalize their flagging balance sheets after sustaining huge losses in the mortgage-backed securities boondoggle. That’s the whole thing in a nutshell. Now they’re on to their next swindle; distorting the futures market with gargantuan leveraged bets on food and oil.
MarketWatch summed it up like this on Monday:
“NEW YORK (MarketWatch) — Speculators now account for about 70 per cent of all benchmark crude-oil trading on the New York Mercantile Exchange, up from 37 per cent in 2000, according to congressional findings cited in a Wall Street Journal report Monday.
Full article:
http://www.counterpunch.org/whitney06242008.html
24 June 2008, 9:28 amLisa:
Saudi Net Crude Oil Exports Print E-mail
By John Busby
Jun/26/2008
The UK Prime Minister, Gordon Brown, has just visited Jeddah, together with leading industrialists in an attempt to boost Saudi crude oil production, reflecting his concerns with the current crude oil price escalation. In response, the Saudi oil minister has promised to raise production by 500,000 barrels per day. However, a closer look at production/consumption levels in the Kingdom, suggests that the Prime Minister’s trip was not as fruitful as the pre-summit media anticipated.
BP Statistical Review 2008
BP has just published its annual Statistical Review which provides a comprehensive review of statistics encompassing oil, gas and coal reserves, production and consumption together with many other aspects of global energy vital facts and figures.
Full article at:
http://www.sandersresearch.com/index.php?option=com_content&task=view&id=1360
26 June 2008, 11:14 amLisa:
Countdown to $200 oil meets Anglo Disease
by Jerome a Paris
Sat Jun 7th, 2008 at 08:41:53 AM EST
One of the more interesting things about yesterday’s economic news was the very obvious connection between the unemployment number and oil prices. What links the two is debt, the defining feature of what I have called the Anglo Disease, ie the highly unequal economy whereby the rich and the financial sector (almost the same thing these days) capture most of the income but hide it by providing cheap debt to the middle classes so that they can continue to spend.
Oil has played a fascinating side role in my Anglo Disease series, allowing the debt bubble to go on for much longer than expected. But now, instead, it is accelerating the crash. Let me take you through the whole cycle.
Anglo Disease diaries
Countdown to $200 oil diaries
Full article at:
http://www.eurotrib.com/story/2008/6/7/84153/17279
26 June 2008, 1:06 pmLisa:
The Series continues:
Countdown to $200 oil: $140 oil and speculation
by Jerome a Paris
Fri Jun 27th, 2008 at 02:50:45 AM EST
There are A LOT of reasons why oil prices are going up. Let me show you just a few.
Full article at:
http://www.eurotrib.com/story/2008/6/26/175824/093
29 June 2008, 3:15 pmLisa:
“We’re Entering a Two Economy Society.
There is No Force Opposing Financial Polarization”:
Interview with Michael Hudson
By Mike Whitney
http://www.informationclearinghouse.info/article20208.htm
30 June 2008, 10:31 pmLisa:
Oil and Gas Net Exports Print E-mail
By John Busby
Jul/02/2008
BP has just published its annual Statistical Review which provides a comprehensive review of statistics encompassing oil, gas and coal reserves, production and consumption together with many other aspects of global energy vital facts and figures. It contains historical data up until 2007, allowing trends to be viewed.
Full article at:
http://www.sandersresearch.com/index.php?option=com_content&task=view&id=1361
2 July 2008, 10:51 amLisa:
Why I keep underlining bad news
by Jerome a Paris
Sun Jul 06, 2008 at 05:04:43 AM PDT
Many of you have noted that my diaries persistently focus on bad economic or financial news, and often announce more to come. A few complain that I’m gloating over other people’s misfortunes; some point out that it’s too easy to be systematically negative, as I’ll eventually be right, if temporarily (in a “broken clock” kind of way), but that means little; and many more are seriously scared by all my doom’n'gloom.
I’d like to note, for the record, that bringing up such bad news (the real estate crash, the increasing energy prices, the financial crisis, etc…) has a very real political purpose and is at the heart of what this website is about.
A simple argument, that I have made on occasion, is that bringing up such negative news a couple of years ago was necessary, given the then prevailing bullish discourse. The prognosis was correct, both about the crisis we are in now, and its causes. This is not about shouting “recession” every year until it happens as part of a regular cycle: this was about identifying underlying failures of the economic regime we were in, and pointing them out despite the general cheerleading (or denial) in the media and the political world. It was about being reality-based.
But more importantly, this is about identifying causes and allocating responsibility for what’s happening today. The crises I have been describing are a direct - and in many cases, desired - result of political choices that have been imposed on us, and it is fundamentally important that the underlying ideology be (i) identified and (ii) blamed for what happened, rather than amorphous and uncontrollable things like “globalization” or “economic cycles.”
Full article:
6 July 2008, 8:35 pmhttp://www.dailykos.com/storyonly/2008/7/6/65026/45211/912/547245
Lisa:
FAUSTIAN ECONOMICS: HELL HATH NO LIMITS,
By Wendell Berry
The general reaction to the apparent end of the era of cheap fossil fuel, as to other readily foreseeable curtailments, has been to delay any sort of reckoning. The strategies of delay, so far, have been a sort of willed oblivion, or visions of large profits to the manufacturers of such “biofuels” as ethanol from corn or switchgrass, or the familiar unscientific faith that “science will find an answer.” The dominant response, in short, is a dogged belief that what we call the American Way of Life will prove somehow indestructible. We will keep on consuming, spending, wasting, and driving, as before, at any cost to anything and everybody but ourselves.
This belief was always indefensible—the real names of global warming are Waste and Greed—and by now it is manifestly foolish. But foolishness on this scale looks disturbingly like a sort of national insanity. We seem to have come to a collective delusion of grandeur, insisting that all of us are “free” to be as conspicuously greedy and wasteful as the most corrupt of kings and queens. (Perhaps by devoting more and more of our already abused cropland to fuel production we will at last cure ourselves of obesity and become fashionably skeletal, hungry but—thank God!—still driving.)
Full article:
http://carolynbaker.net/site/content/view/575/1/
8 July 2008, 12:57 pmDeAnander:
Superb article by Berry — thanks Lisa. I’ll be cross-posting that one.
9 July 2008, 1:40 pmLisa:
Quarterly Forecast: Third Quarter 2008
Introduction
For the first half of 2008, Stratfor focused its attention on three features of the international system. All three remain key factors, but all have also evolved notably.
First, we anticipated an endgame between the United States and Iran over the future of Iraq. We have been surprised at just how fast U.S.-Iranian negotiations have progressed, and consequently violence has dropped to its lowest levels since the 2003 invasion (something that would be impossible without Iranian assistance). What is truly amazing is how few items necessary for a deal are not already in place. We are unlikely to have a formal “Camp David” moment, but the U.S.-Iranian understanding seems to be building quickly on the ground.
Second, Russia’s efforts to rebuild its influence throughout Eurasia have been at a critical point. With the Western-backed independence of Kosovo making a mockery of Russian foreign policy, we predicted that Moscow either had to strike back or see its credibility in key former Soviet Union territories crumble. As it turned out, Russia’s internal factional struggles distracted and exhausted the Kremlin. Striking back at Europe and the United States in any place that would have caused harm proved impossible, forcing the Russians to concentrate on places such as Central Asia, the Caucasus and Ukraine. In the long run, this may well prove to be the worst of all worlds, as the Europeans are convinced they beat the Russians, while the Russians are equally convinced that they have drawn a line in the sand. For the moment, however, Russia requires time to plan and flesh out its new organizational structures. That will take up the bulk of the third quarter.
Third, we forecast that high energy prices would create a flood of petrodollars that mostly would end up flowing into U.S.-dollar assets, greatly stabilizing the financial system and helping the United States shake off its economic funk. This prediction proved true in spades, and U.S. economic growth has certainly turned a corner, but two related developments have taken root. First, having oil prices increase by 40 percent in three months cannot help but have an enervating impact on economic growth, particularly in the heavily industrialized states of East Asia. Second, all that oil income is beginning to have additional impacts.
The Arab Gulf states are grossing approximately $2 billion per day, with half of that amount flowing into the coffers of Saudi Arabia. This provides the Saudis — and other Gulf Arabs — not only with tremendous wealth, but also with tremendous political power. A key trend in the third quarter will have these states using that wealth to invest, bribe and cajole their friends and enemies into following policies more to Riyadh’s liking.
This money will be most politically active in two locations: Lebanon and Iraq. In both places the Saudis want to see some flavor of a peace deal. The common thread to the two issues is the Saudi fear of Iran. An Israeli-Syrian peace deal means reducing Tehran’s influence within the Sunni world — specifically, the influence it holds over Damascus and Hezbollah. A U.S.-Iranian deal over Iraq means re-establishing Iraq as a buffer against Iranian expansion. In both cases, Saudi money is useful in bringing the various players to the table — most notably Damascus and the various Iraq Sunni factions — and paying them to stick to an agreement. In the case of Israel and Syria, the constellation of forces in play suggests a deal will be struck sooner rather than later.
There is one additional topic that will feature grandly in the third quarter: the Beijing Olympics. Ruling China has always been a difficult prospect, as the country is riven with urban-rural and coastal-interior splits. But while the Olympics were supposed to have been a celebration of China’s “arrival” as a modern state, they are instead serving as a showcase for all the ways in which China falls short. But dealing with these issues — entrenched corruption, financial dysfunction, (unapproved) regional autonomy, unaffordable energy subsidies — is difficult for Beijing in the weeks leading up to the Olympics because, under the glare of international spotlights, it can no longer use the tried-and-true tools of an authoritarian state. The result is a string of patchwork fixes that highlight China’s weaknesses, making the Asian giant vulnerable to any foreign power with an interest in demonstrating that the emperor is less than fully clothed. Not exactly the global celebration that Beijing intended when it bid for the Olympics all those years ago.
Full article:
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/07/10/quarterly-forecast-third-quarter-2008.aspx
10 July 2008, 7:56 pmLisa:
Some important articles:
Why the Bail Out of Freddie Mac and Fanny Mae is Bad Economic Policy
By MICHAEL HUDSON
http://counterpunch.com/hudson07152008.html
————————–
The Financial Tsunami: The Next Big Wave is Breaking Fannie Mae, Freddie Mac and US Mortgage Debt
by F. William Engdahl
http://globalresearch.ca/index.php?context=va&aid=9588
————————–
Let the Lawsuits Begin: Banks Brace for a Storm of Litigation
by Dr. Ellen Brown
http://globalresearch.ca/index.php?context=va&aid=9577
————————–
Unfolding Financial Meltdown: Sorry, But Just the Facts
by Doug Noland
http://globalresearch.ca/index.php?context=va&aid=9572
————————–
Status Report on the Collapse of the U.S. Economy
by Richard C. Cook
http://globalresearch.ca/index.php?context=va&aid=9596
16 July 2008, 4:41 pmLisa:
Financial Collapse Edges Closer
By Martin Hutchinson
16/07/08 “Asia Times” — – The financial crisis in the United States and worldwide entered a new phase this week, as Fannie Mae and Freddie Mac, the two huge US home-loan institutions, began what appears to be a “death spiral” similar to that which claimed Bear Stearns four months ago. Fannie and Freddie are unique institutions and will almost certainly be bailed out by the long-suffering taxpayer. However, for the first time, the specter has been raised of a general financial meltdown, such as the US managed to avoid in 1933 but Sweden succumbed to in 1991.
Full article:
http://www.informationclearinghouse.info/article20295.htm
16 July 2008, 4:59 pmLisa:
Russia’s energy drive leaves US reeling
By M K Bhadrakumar
In sum, the past week’s flow of events in places as far apart as Prague, Hokkaido, Tbilisi, Harare, Tehran and the Arctic underscored that after a brief respite, the rivalries over energy security have revived with a ferocity that can rock the equilibrium of overall US-Russia relations. The situation will likely be exacerbated in the coming period. The geopolitics of energy security are a highly sensitive subject for the Bush administration, whose profound links with Big Oil are legion. It is a tremendous loss of face for the Bush-Cheney-Rice combine that Moscow is outwitting the US on the energy front.
Full article:
http://atimes.com/atimes/Central_Asia/JG19Ag01.html
18 July 2008, 2:30 pmLisa:
Eulogy for the Ownership Society
Swan Song for Fanny Mae
By MIKE WHITNEY
The Fed’s emergency rescue plan for the financial markets is hopelessly flawed. It’s a scattershot approach that doesn’t address the real source of the problem; an unregulated, unsustainable structured finance system that emerged in full-force after 2000 and spawned a shadow banking system that creates trillions of dollars of credit without sufficient capital reserves. This is the heart of the problem and it needs to be debated openly. The present system doesn’t work; it’s as simple as that. It makes no sense to provide trillions of dollars of taxpayer money to shore up a system that is essentially dysfunctional. It’s just throwing money down a rat-hole.
Full Article:
http://counterpunch.com/whitney07182008.html
18 July 2008, 2:34 pmLisa:
California must wake up to looming fuel crisis
by Erica Etelson
I lived in Berkeley for sixteen years before getting around to stashing my five gallons of water and twenty cans of fruit cocktail. I’m as ready as can be for the big earthquake we’re all waiting for. But what I’m not prepared for—what no Californian save the odd self-reliant homesteader is prepared for, is the other Big One—peak oil.
Like it or not, oil fuels the engines of industrialized economies. In California, we burn through nearly 20 billion gallons of the stuff each year just driving around. Then there’s the oil we use to grow and transport food and pump water, the oil that fuels planes, trains and cargo ships, and the oil that is embedded in every computer, every inch of asphalt and every bit of plastic. Oil is everywhere; so imagine my surprise when I learned last year that it is running out–and that the federal government is doing nothing to prepare for this eventuality.
Speculation regarding the human impact of oil shortages runs the gamut from a deep recession to a second Great Depression to widespread famine and social disintegration. As an urban dweller with two kids, a forty-square foot yard and little ability to keep houseplants alive, much less grow my own food, words like “famine” and websites like “dieoff.org” tend to send waves of panic crashing against my brain stem.
So began my peak oil odyssey in search of an answer to one simple but gargantuan quandary: Is California prepared for peak oil?
http://energybulletin.net/node/46007
23 July 2008, 4:36 pmLisa:
July 23, 2008
The Road to Perdition
Visualizing Dow 6,000
By MIKE WHITNEY
Last Wednesday, at an improvised press conference, George Bush gave what may have been the most comical performance of his eight year presidency. Looking like the skipper on the flight-deck of the Hindenburg, Bush tried his best to reassure the public that “all’s well” with the economy and that everyone’s deposits were perfectly safe in the rapidly disintegrating US banking system. Leaning lazily on the presidential podium, Bush shrugged his shoulders and said,
“My hope is that people take a deep breath and realize that their deposits are protected by our government. We’re not seeing the growth we’d like to see, but the financial system is basically sound.”
Right. “Breath deep” and chill out; no need to panic. One shouldn’t let the long lines of anxious depositors who are presently trying to extract what’s left of their life savings from the now-defunct Indymac Bank upset one’s basic equanimity. The banking system is perfectly safe, you heard it from President Trickledown himself.
At the same time Bush was offering his soothing words on all the major TV news networks, Fed chairman Ben Bernanke was on the other side of Washington giving a decidedly grimmer assessment of the economy:
Full article:
http://counterpunch.com/whitney07232008.html
23 July 2008, 5:38 pmStan:
Jewels from Whitney’s article:
The reason this kind of bunkum works — for now — is that people think economists are scientists. They are not. They are PR hacks. And the ignorance that this con-game is based on is a failure at every level and in every sector of society to understand what exactly money is. It is taken as an irreducible; and we are not trying to understand it as an ecosemiotic phenomenon… or as a form of idolatry for the masses and an entitlement to exploit by the powerful.
If we could demystify money, the light that flows in would be everywhere.
Here are Liu’s comments:
And Michael Hudson:
24 July 2008, 6:01 amCraig:
From today’s NY Times:
A little history first. One reason the federal government is under an obligation to guarantee full payment of the debt instruments issued by Fannie Mae and Freddie Mac stems from a decision made at the Federal Reserve Bank of New York about a dozen years ago.
Historically, foreign central banks that found themselves with excess dollars as the result of the American trade deficit invested that money exclusively in Treasury notes and bills. As a service, the New York Fed made those investments for them, guaranteeing them the best current price and retaining legal custody of the paper as their agent.
However, by the mid-1990s the countries that had large trade surpluses with the United States — primarily in East Asia and the Persian Gulf — began to demand a better return on investment than that offered by Treasury paper. In response, the New York Fed began to buy them “federal agency” paper — including large amounts of obligations from Fannie and Freddie. This paid somewhat better interest, and while it was not officially guaranteed by the government in the way Treasury bills were — well, you know, if push came to shove, Washington could be counted on to do the right thing.
It’s refreshing to see an op-ed in the Times that puts the focus on the “credit crisis” where it actually belongs, on how dollar hegemony leads to trade-offs and, eventually, contradictions that make the system untenable.
Stan:
[Money] is taken as an irreducible; and we are not trying to understand it as an ecosemiotic phenomenon… or as a form of idolatry for the masses and an entitlement to exploit by the powerful..
The title of the Whitney piece is “Visualizing Dow 6,000.” The Dow Jones Industrial Average is also a standard ecosemiotic, only worse, because it demands that publicly traded corporations receive special consideration over other forms of economic activity, and 401 K’s are really a form of blackmail on the part of large equity holders. Like agency paper, however, you can only take so much advantage before the system falls apart. Large percentages of middle aged Americans are counting on the equity in their homes and in their 401 K’s to allow them to retire. When these two illusions evaporate, there will be a lot of pain. Unfortunately, I don’t really hear much focus on this.
29 July 2008, 8:40 pmLisa:
WSWS : News & Analysis : World Economy
Oil giants report massive profits
By Shannon Jones
6 August 2008
Profits for the major multi-national petroleum producers surged in the second quarter of 2008 boosted by record oil prices. Leading the way were ExxonMobil and Royal Dutch Shell, which netted over $10 billion apiece.
Exxon, the world’s largest privately held oil company, reported a 14 percent rise in income to a record $11.68 billion, the largest ever for a US corporation. Some $10 billion of that came from selling oil, up 70 percent from the previous quarter. The massive profits came despite an eight percent decline in production from 2007, the largest in a decade.
Exxon cited a number of factors in the production decline including a strike in Nigeria and the nationalization of one of its large oil projects in Venezuela.
Shell, meanwhile, reported profits of $11.56 billion on revenue of $131.42 billion, up 55 percent. The company’s production of oil and natural gas fell one percent compared to last year.
The second largest US oil company, Chevron, said it had profits of $5.68 billion for the quarter, also a record.
Conoco Phillips and British Petroleum both reported record earnings. BP reported a $9.5 billion profit for the quarter and a $13.4 billion profit for the first six months of 2008 while Conoco took in $5.4 billion for the quarter. French energy company Total earned $7.3 billion.
The six largest producers saw a combined 40 percent jump in profits to $51.5 billion.
Other European-based oil companies also saw big increases in profits.
* The Italian oil company Eni SpA said its profits rose to $5.36 billion, an increase of 52 percent.
* Spanish Argentine oil company Repsol YPE saw its profits rise 11 percent to $1.4 billion.
* Norway’s StatoilHydro ASA reported a record second quarter profit of $3.7 billion.
Full article:
http://www.wsws.org/articles/2008/aug2008/oil-a06_prn.shtml
6 August 2008, 11:12 amLisa:
Countdown to $200 oil (10) - oil at $115!!
Posted by Jerome a Paris on August 10, 2008 - 8:20am in The Oil Drum: Europe
…
Many don’t agree with my assertion that speculation has little or nothing to do with the run-up in oil prices, and consider that the brutal price increases, followed by just as brutal price decreases, cannot be explained by fairly small changes in supply or demand figures.
Let me try to explain again why, in today’s conditions, small variations have precisely such consequences.
Full article:
http://europe.theoildrum.com/node/4399#more
10 August 2008, 2:44 pm