Friday, January 27, 2006

Here Is The Big Gay Agenda
Revealed! The horrifying secret plot to homo-amplify America. Also: Dig this hetero agenda!

By Mark Morford, SF Gate Columnist

Friday, January 27, 2006

I have spoken with my gay friends. I have been to yoga classes and men's health spas and Restoration Hardware, chic rug shops and the Castro Starbucks and really cute restaurants featuring mixed baby greens that cost $12. I have observed. I have taken notes. I have checked the fashions and the cars and the skin-tight T-shirts, the newsletters and the bumper stickers and the secret codes hidden within the rainbow flag.

It is time to come clean. It is time to reveal the truth. After all, the religious right has been hammering at it for years, the pseudo-Christians and the homophobes and the sexually terrified all fully and truly believing that there is a plot, a massive, deep-seated agenda among the gay community not only to decriminalize and demystify homosexuality but to actually coerce and cajole and actively lure the innocent white babies of America into the sordid and well-dressed "gay lifestyle," so much so that, much like aliens living in underground cities in Area 51, well, there must be something to it.

Just look. Look at the wanton slew of nasty e-mails I received -- intermixed like bloody shrapnel amid a huge stack of gorgeous e-mail enthusiasm, mind -- in response to my recent column extolling the virtues of the heartbreaking, perspective-altering "Brokeback Mountain" phenom, wherein I dared to suggest that this spare and potent little film might actually help deflect the savage karmic pain of people like Samuel Alito and move the human experiment forward, just a little. What nerve I had.

Mark, gay films move us back. To tell society, which includes children, that to stick a penis inside someones anus, a wholey unnatrual act is ok and normal is ubsurd. I don't hold anything against gays, I'm not one to judge people, they can do what they please, but to shove their pervertions down everyones throat, and to try to make it mainstream and teach children honosexualiy is a normal thing for people to do is sick. -- Steve W

Or this:

It is really hard to believe that people like yourself are gloating over this film and are so proud of the degradation of our country (USA) that you have joined the masses and are HELL BENT on the destruction of Christianity, family values, and everything that is decent and what out forefathers have fought and died for in this country. Your kind are the real BIGOTS! You are the enemy of everything that is decent and good, you love death and destruction (that is what the homosexual lifestyle will lead to)... -- Larry L

Isn't that sweet? Doesn't it make you feel good to be an American? Sure it does.

But you know what? Adorably rabid, misguided homophobes like Steve and Larry, they might have a point after all. Because after all my observations and when I really allow myself to be honest, I become convinced of the existence of a truly shocking gay lifestyle, an actual gay agenda far more sinister than even desperately misguided and morally lost people like Steve and Larry can comprehend.

Do you know what it is? Do you want to know the real gay agenda, what 96.8 percent of all gay couples wish for every single day including Sunday? Here it is:

From what I can glean and above all else, the gay people of America seem to want this simply inexcusable level of boundless, unchecked normalcy. It's true. For some reason, they believe the utterly disgusting idea that they should be able to live their lives in peace and trust and health, with full support and assistance from their schools and hospitals and government, just like everyone else. I know. Shudder.

It is, in fact, remarkably similar to what heteros want. And women. And black people. And immigrants. And dwarves. That is, to be able to fall in love and maybe even get married (or at least have the option) and have decreasing amounts of sex and raise a family and hold down a good job and pay their taxes and argue with their lovers over who the hell spent 200 bucks on long distance to their mother, all while not having to worry about getting the living crap beaten out of them with tire chains by Arkansas and Alabama and most of Texas, or secretly loathed by small-minded pseudo-Christians who wouldn't know Jesus' true message if it bit them on the other cheek.

Ah, the deviousness of it all, the sheer nerve to desire the same sort of lives as everyone else. But do you want to know the kicker? The true aspect of the "gay agenda" that makes the religious right's skin really crawl? Here it is: When all of that normalcy is in place, when these repulsive gay beings who like to walk around in public and eat at restaurants and drink their lattes and laugh out loud and stick things into each other's bodies for sexual pleasure, well, they want the most appalling thing of all: They just want to be left alone.

I know. It's hideous. How dare they! How dare most gays ask not to be harassed and not really care to flaunt their sexuality or convince anyone that homosexuality is cool or righteous or the only way to be, beyond reassuring children that it's OK to be whatever religion or sexual orientation your mind and body and heart and soul guide you to be. Can you imagine? What horror. Ignorant, intolerant schoolteachers should protest that nasty idea right now. Oh wait.

This is, in fact, the most sinister gay agenda of all. Normalcy. Lack of fear. Happiness. The right to be miserably in love just like everyone else and have it recognized by the culture as, well, no big deal. Safe. Healthy. Beautiful, even. What nerve.

To Steve and Larry's great dismay, gay people do not seem to care in the slightest for converting anyone to homosexuality, which of course would be the equivalent of converting a frying pan into a doorknob. It simply cannot be done. It's bitterly sad that this must be repeated so frequently in terms so simple that even Steve and Larry can comprehend, but gayness is no more a lifestyle choice than is blond hair or blood type or that knowledge, deep down in your skin, that Bush is raping the soul of the nation. It just is.

Much can be learned from this shocking revelation. Much we can glean from the gay agenda's "true" motivations -- most notably in how it contrasts with the famed and beloved Christian neoconservative heterosexual agenda, the one that instructs that you please keep your mouth shut and blindly believe in the same bitter God as everyone else, and by the way please bury your true sexuality and get married at 23 and pop out six kids and become quickly and quietly miserable and gain 30 pounds and stop having sex entirely and get divorced at 50 and wake up just in time to watch yourself die.

Oh my yes, that has proven to be just so much better, hasn't it, Steve? Larry?
US Consumer Spending: Consuming America
A Daily Reckoning White Paper Report

By Dr. Kurt Richebacher
One has to realize that all the increase in US consumer spending is borrowed. And it is borrowed against rising house prices. In 2001, Greenspan replaced the bursting stock market bubble with the housing bubble. But soon he’ll be faced with a bursting housing bubble. The only question is when.

Asset prices are the key to the US economy. As long as asset prices are high, there seems to be ample liquidity in the economy. But as asset prices fall, the liquidity disappears. Americans think they are liquid. They aren’t liquid. Liquid is a person who has savings. We must realize that the appearance of great liquidity is merely the result of highly leveraged asset prices. And those can collapse.

Excess credit is the only thing supporting asset prices...Greenspan recently observed that American consumers have weathered the energy price hikes very well. But that’s only because they borrowed crazier and crazier. That’s not the kind of resilience you should applaud. It’s as if he said, “We succeeded in helping the consumer to borrow more and more.”

US Consumer Spending: The Noose Tightens

It would be desirable, of course, if the consumer would retrench a bit. Not that he would continue to increase his borrowing.

The thing to realize, of course, is that the housing bubble is many times more dangerous than the stock market bubble, because it involves the whole banking system. Greenspan has replaced one bubble with an even bigger and more dangerous bubble.

American monetary policy is out of control. Greenspan has created a debt Colossus. This debt Colossus needs permanent new credit. In an economy that needs four dollars in credit to produce one dollar of GDP, simply reducing credit could be disastrous. Even a slight reduction of credit could create enormous negative repercussions in the asset markets and financial markets.

The level of credit excess in America has reached such a level of absurdity that no return to normalcy is possible without a disastrous effect on the economy.

US Consumer Spending: America the “Ponzi unit”

America has become what Hyman Minsky calls a “Ponzi unit.” In other words, there sometimes comes a point where an economic unit has to rely upon asset sales to satisfy its interest payments and debt repayment. That’s America!

The writings of Hyman P. Minksy, particularly his 1986 book, ‘Stabilizing and Unstable Economy,’ ...identify three distinct income-debt relations for economic units: hedge, speculative and Ponzi finance:

1) Hedge-financing units can fulfill all of their contractual payment obligations by their cash flow.

2) Speculative units can meet the interest bill on their liabilities from their income, but are unable to repay the principal out of cash flow from operations. They need to roll over their liabilities.

3) Ponzi units are unable to fulfill repayment of principal and to pay the interest due on outstanding debts by their cash flow from operations. They depend on borrowing or selling assets even to meet their interest bill.

It is a reasonable conclusion that the U.S. economy and its financial system on the whole have become one huge Ponzi financing unit.”]

US Consumer Spending: The Abolition of Saving

What the Americans have done is that they have simply abolished savings. And that means that more and more of GDP goes into consumption at the expense of investment and at the expense of the trade balance...

What I often hear is that there's so much liquidity in the US economy and US financial markets. But this liquidity is not from cash. It is credit. There is huge liquidity in the asset markets that could turn into a savage deflation tomorrow. This is an illusion, this liquidity argument. It works as long as the system of inflating asset prices functions. But when it stops, liquidity is gone. If there is a lot of leverage in the market, it can collapse.

It has not yet happened...But it will, as soon as credit becomes more expensive or difficult to obtain...

The crucial support for the American financial infrastructure is the massive purchases of U.S. Treasury bonds by foreign central banks. The Americans think that this is to their advantage. But this only means that they have a longer rope with which to hang themselves. To have too much credit is never good, not for a country and not for an individual and not for a company.

America as the Empire of Debt

This is the problem: America has too much international credit. Not from private investors, but from central banks. Central banks are the marginal key influence. And therefore, when you consider the American fundamentals, America is certainly the most backward country in the world, among industrialized nations.

From a fundamental point of view, the American economy is in incomparably worst condition today than in 2000. Income growth for the individual is stagnating. It is negative. And there is no savings. America has no reserves to protect itself against the next recession.

The fact is, Americans are trapped. And worse, there comes a point where they are unable to sell any assets to raise capital, a point where the markets become completely illiquid...because there's no buyer left. The buyers of today are all leveraged buyers. They need new credit. But when you get declining prices, there is no buyer left. America's super-liquidity all comes from borrowing. Credit has played a major role in all U.S. financial markets...

There are many who say that deficit spending by the government is bad. But they don't say that deficit spending by the consumer is equally bad, or worse. The American idea that everything good comes from consumer spending is preposterous. And that is the key fallacy in America today.

But the key question is whether America has finally reached the inflection point where its disastrous economic policies will begin to undermine its prosperity. I think she has.

There is no way out. The excesses are much too big to be treated with conventional methods.

US Consumer Spending: The Great Ideological Divide

Anglo-Saxons know no limits at all! And no one complains about it. Europeans impose fiscal limits on ourselves and have difficulty keeping them under control, which is understandable. But when Americans double and treble their deficits, that is okay, because there are not limits. The Anglo-Saxons have two different sets of rules: One for the Europeans and one for the Anglo-Saxons. The Anglo-Saxons can do whatever they like.

The normal economic condition for a developed industrial country is to have an export surplus, and this surplus becomes the basis of its capital formation...That was basic macroeconomics.

All of a sudden, the virtue of an industrial country is not to export, but to save the world through over-consumption.

The European economies, for example, always had investment and export as a key driver of growth. And that is what you would expect from an industrialized economy, that is invests and that it exports...But Americans just borrow and consume.

Because consumption has grown so far out of proportion to production, capitalist America relies on the generosity of communist China. Americans don’t even realize how ridiculous and absurd this is. It’s so absurd I can’t believe it. I think this is the worst sign that I could imagine. It means that net investment is collapsing.

Consumption produces the least desirable kind of growth. And the simple thing to know is that it is unsustainable. It is unsustainable because real incomes are not growing. In America you're having a fiasco in employment and income growth. The average income of the American middle-class is declining in real terms. And they have debts and debts and debts and zero savings. They have no reserves.

US Consumer Spending: Manufacturing Disaster

In America, it is no secret, the manufacturing sector is shrinking. That's THE big problem. In every economy, the manufacturing sector has the biggest multiplier effect.

Manufacturing is a sector that uses all the intermediate goods. That's part of its multiplying effect. The growth of financial services is fine, but not when the manufacturing sector is disappearing at the same time...When you look at capital goods production in the United States, you can see what has collapsed is investment. And with the collapse of investment you have a collapse of employment in the manufacturing sector...

There are two kinds of assets; those that you produce, and those that you simply trade. In America today, you have an inflated service sector trading inflated assets. The assets that you trade do not produce any widespread wealth. They simply produce wealth for the individuals who trade them. The great failure in America is in investment, employment and income growth...and that is tied to manufacturing.

we're living in a world where Greenspan and his associates have told the world that all of America's massive imbalances do not matter. But for any economist who has a little something in his head, the structure of the American economy is one of the most alarming of all time. For a developed economy it is scandalous.

The American economists think this is perfectly acceptable. But I find it unbelievable. Like Ben Bernanke blaming the rest of the world for what he calls a “savings glut.” This is crazy. Why isn’t he, instead, urging Americans to save and to invest? Are the Fed governors really as stupid as they appear? Or are they deliberately stupid?

There are, of course, people in America, including many of my readers, who are old-fashioned, economically speaking. Paul Volcker, for example, who is an old friend of mine. But he held these basic economic concepts that I write about in his gut. All these things that I write about used to be in the gut of every economist.

The Americans I knew thirty years ago saved money. They didn’t save as much as the Europeans, but they held the same attitude, at least. The fundamentals were never questioned. No economist questioned the idea that a nation needs savings. They never questioned that investment is crucial for prosperity. It was never questioned that a developed country should have a surplus in its current account. This was never questioned! It was never a topic of discussion!

But all of a sudden, the Americans have rewritten economics...because it suits them...Saving money used to be instinctive in people, even without any economic theories. Classic economic theory is absent in America. It does not exist.

US Consumer Spending: More popular the Quaint

Anachronism of Saving.

We are at an inflection point in thinking...The big change begun in the 1980s. In the '80s, Americans continued to save, but it was the government that began to dis-save. And at the time, there was a lively debate among economists about the wisdom and benefits of deficit-spending by the government. There was a very lively debate about this topic. Today there is no debate. There is no longer any economic discussion. American economists are silent, deeply silent.

Do you know why they are quiet? Because academic America, like all of America, believes that consumer spending is the key to prosperity. The high esteem of consumer spending is implanted in every American, including its academics.

There are many who say that deficit spending by the government is bad. But they don't say that deficit spending by the consumer is equally bad, or worse. The American idea that everything good comes from consumer spending is preposterous. And that is the key fallacy in America today.

And so I wonder, is it possible that next year we will see the great denouement of the American economy?
The housing market's last gasp
By Mike Whitney
Online Journal Contributing Writer

Dec 28, 2005, 00:46
Four months ago I wrote an article, "Doomsday; the Final Months of the Housing Bubble," that predicted a dramatic fall in housing prices that would have a catastrophic effect on the American economy.

In truth, I'm a lousy forecaster and simply collected the relevant data from a number of sources that convinced me that the end was quickly approaching. Now, it seems that dismal day is upon us and the Grim Reaper has begun churning out the disappointing statistics that we've dreaded from the very beginning.

In November, the sales of new homes plunged by the largest amount in 12 years. The 11.5 percent decline from October was 4 points higher than expected by Wall Street analysts, fueling the belief that the red-hot housing market is headed for the dumpster.

This sudden downturn is expected to slow the wave of speculation that has kept the market booming for the last few years. According to an Associated Press report, sales dropped by "22 percent in the West, the biggest decline in the region since February 1995."

Many readers will wonder why trimming the spec-market threatens the overall economy. The reason is, as The Economist points out is that "23 percent of all American houses bought in 2004 were for investment, not owner-occupation. Another 13 percent were bought as second homes. Investors are prepared to buy houses they will rent out at a loss; just because they think prices will keep rising -- the very definition of a financial bubble."

If we consider the effects of 36 percent of buyers moving out of the market we can grasp the magnitude of the problem.

The crisis is compounded by the enormous effect of the housing market on both growth and jobs.

"Over the past four years, consumer spending and residential construction have together accounted for 90 percent of the total growth in GDP. And over two-fifths of all private sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking." (The Economist)

"Two out of every 5" private sector jobs?!

"Ninety percent of the total growth in GDP"?!

These are figures that simply boggle the mind. What it tells us is that the market has been artificially inflated by the Federal Reserve's shortsighted low-interest rates policy and the shabby lending practices of the major mortgage companies.

The banks have lowered the standards for home loans to such an extent that the traditional loan of 20 percent down and a fixed interest rate is virtually a thing of the past. Instead, those conservative practices have been replaced with "creative financing" schemes that put the entire housing market at risk.

In 2004 "one-fourth of all home-buyers -- including 42 percent of first-time buyers -- made no down payment." (New York Times, July 7, 2005)

Equally troubling is the fact that "nearly one third of all new mortgages this year call for interest-only payments (NY Times) This tells us that a large number of new buyers can barely make their payments, but are gambling that their property value will go up enough to justify their investment. This is "equity roulette," a shell game that anticipates that salaries will go up while interest rates stay low.

We can anticipate that many overstretched homeowners will begin to fall from the economic precipice in short order. In fact, many markets are already showing a 40 percent increase in foreclosures even though the air has just begun hissssssing out of the bubble.

The ridiculously low interest rates coupled with the irresponsible lending practices has precipitated a feeding frenzy for cheap money. Greenspan is expected to raise rates another one-half percent before he leaves in January which should be just enough to collapse the market and put the economy in a permanent coma.

As Paul Van Eeden says in The End of the Real Estate Boom, 'this is not a trivial matter. As the real estate market goes, so goes the economy and the stock market. The only thing that could keep the US on life-support a little longer is another round of interest rate reductions, but this time it could hurt the dollar, and that would mean higher gasoline prices again, so it's a double-edged sword."

Van Eeden provides a good description of the mess that Greenspan has created; a blind alley from which there is no foreseeable escape. The Federal Reserve has managed to keep the economy running on fumes by dropping rates 12 times to a rock bottom 1 percent after the fall of the stock market (another Greenspan fiasco which cost the American people $7 trillion) It was basically "free money" loaned out to keep the country limping along (and to facilitate Bush's tax cuts) while millions of Americans tried to recoup from their losses. Regrettably, the cheap money and shaky loans simply created an even bigger and more lethal bubble that is following the same trajectory as the Hindenburg.


Adding insult to injury, the Federal Reserve announced two weeks ago that new steps will be taken to regulate low-interest, high-risk loans. In the third quarter, a full 33 percent of first-time home buyers took advantage of "non-traditional" mortgages. ("No interest" or "ARMs," adjustable rate mortgages) Try to imagine the chilling effect on the housing market when 33 percent of first-time homeowners are removed from the pool of potential buyers?

Still think you"ll be able to sell your house at a profit?

Jittery Americans don't need a crystal ball to spot the shipwreck looming just on the horizon. The last remaining droplets of prosperity are trickling from the ailing economy and Greenspan's 18-year quest to flatten the American middle class will soon be realized. The Economist summarized it best when they said, "The worldwide rise in housing prices is the biggest bubble in history. Prepare for the economic pain when it pops."

Mike Whitney can be reached at

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Exerpt posted by mike on Clusterfuck Nation, January 26, 2006:

Now for something completely different (sound of audible groans from the peanut gallery), a pretty solid Peak Oil piece from the boys at Whiskey & Gunpowder (hucksterish advertising removed for your reading pleasure).

Not much here that Weas or X or Jorge haven't discussed before, but JHK comes up towards the end. And not just in typica, "Long Emergency" citations. No, the author quotes language that many of us will recognize from far more recent vintage. Could be that this author is a CFN lurker.

Or maybe a poster? Enjoy:

"Things Just Got Worse


Word just came out that Kuwait, long regarded as home to some of the world's largest reserves of petroleum, may possess only half the amount of oil reserves that it officially has been stating for many years.

According to a restricted report issued by the authoritative industry newsletter Petroleum Intelligence Weekly (PIW), internal Kuwaiti records reveal that the nation's oil reserves are far below the officially stated amount of about 99 billion barrels. Kuwait's reported 99 billion barrels, if they were really there in the ground, would make up about 10% of world's reported oil reserves.

The PIW report is based upon data circulating within the top echelons of the Kuwait Oil Co. (KOC). KOC is the upstream arm of state-owned Kuwait Petroleum Corp. KOC has primary responsibility for conducting exploration, drilling and production from Kuwait's oil fields. The PIW report claims that Kuwait's remaining proven and nonproven oil reserves total about 48 billion barrels, or 51 billion fewer barrels than previously advertised.

By way of comparison, the estimated remaining proven oil reserves for the United States total about 22 billion barrels. Estimates for the North Sea are about 17 billion barrels. So a downward adjustment of 51 billion barrels by the Kuwaitis leaves a good deal more than twice what remains in the United States, and three times what is in the North Sea.

Yet another way of stating the matter, and in a macro sense, the amount of estimated world oil reserves just fell by 5%. This 5% drop in reserves is the equivalent of almost 20 months worth of total cumulative worldwide oil production and consumption, based on the current world oil use of about 84 million barrels per day. From the standpoint of the world reaching the absolute Peak Oil point, we now live in August 2007, not January 2006. And as the Mogambo Guru would say, "Thanks a hell of a lot, guys."

According to the PIW report, the official public Kuwaiti figures do not distinguish between what are known as "proven," "probable" and "possible" reserves. The PIW report stated that the Kuwaiti data indicate that, of the current remaining 48 billion barrels of proven and nonproven reserves, only about 24 billion barrels are so far fully proven (That is, slightly more reserves than in the States).

The rest of the Kuwaiti reserves are probably out there, but we will know only after someone drills and completes a series of wells. And if the wells are dry, whoops, there goes another 2.5% of the world's oil reserves. And in that case, it may as well be 2008, from the standpoint of achieving the milestone for mankind known as Peak Oil. The future is here.

Follow the Oil

Most of the proven Kuwaiti reserves, about 15 billion barrels, are the well-known volumes in Kuwait's largest oil field, at Burgan, in the southeast of the country and just north of the border with Saudi Arabia. Burgan is an extension of a geologic trend that includes the massive Ghawar oil field to the south, in Saudi Arabia.

Burgan is known in the trade as a "super giant" oil field and has been pumping oil for almost 60 years. Burgan accounts for most of Kuwait's oil production and exports. You may remember the images of burning oil wells that came out of the Gulf War of 1991. Almost all of these were wells in Burgan, blown up and set afire by retreating Iraqi troops. (Under international law, oh, by the way, this type of intentional destruction of Kuwait's national patrimony and natural resource base was a war crime of the first magnitude.) The oil was just roaring straight up out of the holes in the ground, propelled by its own underground reservoirs, and feeding the conflagrations. It took many months of truly heroic effort to control the fires. And many of the Burgan wells, and portions of the producing rock formations, were irreparably damaged.

For a number of years, KOC has been adding upward of 500 million barrels of oil reserves per year at Burgan, by means of offset drilling into adjacent geological strata. Statistically, the remaining nonproven reserves of some 5.3 billion barrels will likely be upgraded to proven, according to PIW.

In the fall of 2005, KOC chairman Farouk Al-Zanki admitted that, in the future, the sustained output of the Burgan oil field will be around 1.7 million barrels of oil per day. This amount is significantly less than the 2 million barrels per day of production for the rest of the field's estimated 30-40 remaining years of life that were forecast as recently as mid-2005. In a recent experiment, Kuwaiti oil engineers tried to obtain 1.9 million barrels of oil production per day from Burgan, but the level was not sustainable. The engineers determined that the higher rate of production was causing pressure drops, water intrusion, and other formation damage to the underground reservoirs. Thus, according to KOC, 1.7 million barrels per day is considered to be the optimum rate.

Kuwait has announced plans to spend upward of $3 billion per year into the future to boost output and exports from other fields. There are three consortia, led by BP, Chevron and ExxonMobil, presently pursuing a contract to win something called Project Kuwait. Project Kuwait is intended to be a 20-year operating service agreement with the government of Kuwait to raise crude capacity at four relatively unexplored oil fields in the north of the country, near the border with Iraq. (That is another problem, but we will not go there just now.)
The competition for Project Kuwait is still open. However, I should note that one of the competitors, Chevron, has a long history in that relatively small nation. Gulf Oil Corp., which became part of Chevron in 1984, discovered the super giant Burgan oil field in Kuwait in 1938. In what was perhaps an omen of things to come, the first oil well drilled into Burgan hit pressures that were so high as to blow out the wellhead valves and turn the first Kuwaiti oil well into an uncontrolled gusher. Additional drilling and large-scale development, however, was interrupted by World War II.
The long-term impact of the Burgan discovery went beyond simply drilling wells into high-pressure zones and helped to change the geopolitics of the Middle East. In 1946, Kuwait began exporting oil, and has remained a net oil exporter ever since, except during the time of its military occupation by Iraq, in 1990-1991. After the first tankers started sailing from its ports, Kuwait rapidly became a wealthy nation. To its credit, and through its comparatively prudent stewardship of its oil revenues over the years, Kuwait has become a world-class financial power.

Burgan gusher or not, however, for many oil analysts, the reports that Kuwaiti reserves are significantly less than claimed are not news. For many years, there have been analyses along the lines that the Kuwaitis, and many other oil-producing countries whose reserves are state controlled, have been misstating the size of their reserves. In essence, the officially stated oil reserves of Kuwait have for many years been little more than an illusion, based on nothing more than wishful thinking and economic fiddling. The attitude seemed to be, "Oh, yes. Burgan is a big field. Lots of oil there. No problem."

No problem?

Using a method called "Hubbert linearization," some analysts have previously estimated that Kuwait's ultimate recoverable reserves would be far less than what the government statistics forecast. One authoritative estimate has placed Kuwaiti reserves ultimately at 76 billion barrels, of which about 36 billion have already been produced. This would leave remaining Kuwaiti reserves at about 40 billion barrels, and that is assuming that there is massive effort at additional drilling, new discovery, and production in the years to come. This linearized estimate is in general agreement with the range of oil reserves, 48 billion barrels, based on the internal KOC information that PIW recently reported.

The numbers suggest that Kuwait is at about 47% of its ultimate oil recovery, or, for all intent and purpose, at the halfway point of ultimate oil recovery. Future depletion rates are cheerfully, if not hopefully, estimated to be in the magnitude of about 4% per year. However, the Kuwaitis have in recent years adopted the latest approaches to using new technology to maximize short-term oil production and recovery. That is, they are drilling horizontal wells and using what are called multiple lateral completion techniques. This does not really find "new" oil; it just drains the existing oil faster.

Thus, in this case, it is not possible to rule out the possibility that Kuwaiti oil production will suddenly go into steep decline. This would be similar to what we have seen in other oil provinces that have benefited from application of "new technology," like in the North Sea or Mexico's Cantarell. Instead of the estimated annual 4% depletion rate, we might see a North Sea-like depletion rate of 10% or more per year. Thus, until the decline rate becomes apparent, and given the age of and production history of Burgan, it will not be possible to make a refined estimate of future production trends.

Are the Other Books Being Cooked?

The news out of Kuwait highlights the point that most, if not all, of the estimates published by member nations of the Organization of Petroleum Exporting Countries (OPEC) are similarly without merit. In all likelihood, all of the OPEC member nations have chronically overstated their reserves. The ominous implication is that we are confronting the reality that the world has a lot less oil than we thought and that a peak in global oil output must occur sooner than even some of the most pessimistic predictions.
The news about the Burgan oil field lends credence to the opinions of investment banker Matthew Simmons, who has made a career working with the companies that form the industrial backbone of the oil industry. For the specific arguments of Simmons, you should read his exceptionally well-written book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, published in June 2005. In preparing and writing his book, Simmons reviewed hundreds of technical papers written about the Saudi oil fields, interviewed many people with firsthand knowledge of Saudi oil production, and visited a number of important oil sites in Saudi Arabia. Based on this, Simmons makes a solid case that Saudi Arabia faces an imminent downturn in oil production. And because Saudi Arabia has always been considered the "swing producer" to the world, and thus the price-setting supplier to the world's oil-based economy, any production shortfalls would have severe and immediate economic, political, and military impacts.
Using the "Hubbert linearization" method on publicly available reserve data and production figures for Saudi Arabia, it appears that the Saudis have produced 105 billion barrels of oil out of an ultimately recoverable reserve base of about 180 billion barrels. Much of this production came out of the ground in the past 25 years. Thus, the Saudis are now at about 55-60% of their ultimate recovery and a state of irreversible decline cannot be very far behind.

The implications for the global economy of a decline in Kuwaiti oil exports, let alone Saudi production, are indeed serious. If the world oil supply fails to expand proportionally to the increasing demands of China and India, as well as to growing demand from the West and Japan, then the upward pressure on oil prices will be inexorable. As we have said so many times before in Whiskey & Gunpowder, and in other Agora Financial publications, we can expect to see the price of oil climb.

For the oil producers, an upward price trend will be good news in some respects and come as compensation, for at least a few years, for declining output. Swelling coffers of revenue from oil sales may even cushion some nations against economic collapse, which will be likely when oil prices begin their long-term increase to stratospheric levels.
Oil-consuming nations and societies will face major energy and financial crises. Governments and central banks will try to "inflate" their way out of it, as has been the case in America over the past few years.

Eventually, however, the combination of high prices, depreciating currency, and absolute shortages of oil will lead to profound dislocations in society. Things may approach a state of what author James Kunstler calls The Long Emergency, the title of his book published last year.

And what are the political, economic, and cultural leaders of most nations doing about this profound and precarious situation? Very little, sad to say. At the recent Detroit Auto Show, the biggest press coverage was reserved for new versions of 1960s muscle cars, recreations of such famous old names as the Chevy Camaro and the Dodge Challenger. The U.S. economy is still utterly dependent, and growing more and more so, on over-the-road trucking for most freight hauling, at an average fuel burn of about 4 miles per gallon. And every U.S. politician of any significance has a well-honed "position" on the virtues, or not, of Roe v. Wade. But ask that politician about Peak Oil and, with a few notable exceptions, you will get a blank stare, or at best a silly answer, that betrays little understanding.
So let's review. Kuwait's oil reserves are being downgraded by 51 billion barrels. Detroit is building muscle cars. Few U.S. politicians even have a clue about the problem, and apparently Peak Oil simply does not fit into any of their standard political paradigms. It is just crazy.

Which reminds me of a comment about Peak Oil from the above-noted Kunstler, who has written a sentence that, for a lot of people at least, truly sums it all up:

"Peak is making us insane and passing Peak will make us more insane. There may be no moment of clarity, only new kinds of delusion and disorder. We'll keep behaving the way we do until we can't, and then we won't."

And what are you doing about all of this, dear readers? Do you really believe that, as the notion goes, "technology will save us"? (OK, technology will help, but you had better get out in front of it.) Or do you believe that "the politicians will do something"? (Wow. Call your doctor. Get that closed-head injury examined.) Or do you subscribe to the "abiotic theory" of oil formation? (I call it "abiotic snake oil." It offers nothing but utterly false hope.)
Are your kids studying something in school that will prepare them to compete with 6 billion other people in an energy-short world? ("Marxist Themes in Feminist Literature"? Oh, really? How interesting.) Are you at least investing in the "right kinds" of things, so that you can secure your financial future?

Well, dear readers, if you have gotten this far, you are making a start. We thank you corporately. I thank you personally.

Until we meet again…
Byron W. King"

Monday, January 23, 2006

My latest posting on Clusterfuck Nation:

"I would like to know the precise date when the citizens of the western nations (particularly the US and Canada) suddenly became okay with the moniker 'consumers' and the concept of deserved entitlement and something for nothing became our belief systems. Everything is really screwed up, folks.

I just came back from a spending a week with my Winter Texan parents in in the Rio Grande Valley. To my dismay, I had never seen a region of the continent more tuned to the easy-driving lifestyle and the Wal-Martification of our institutions moreso than here. I had to walk everyday from my parent's trailer park to the gym (only about a 10 minute walk) and do my daily runs against throngs of traffic on main thoroughfares since there are no sidewalks. I don't even think there was a transit system to speak of. Since so many people are poor in that region (other than the retirees there), Wal-Mart and flea markets are booming. It's like bpert said - it's almost like people have to go to the Wal-Mart Super Center DAILY to buy something simply for the sake of buying. It doesn't really matter what it is. This is testament to the fact that the flea markets there attract thousands of people to junk and more junk simply because it's available and cheap. Oh, and of course, it doesn't matter how poor you are there, as long as you have a pimped up car to drive around, you're doing okay and living the dream, right?

Even the streets of small cities like McAllen and Harlingen are choked with traffic throughout the day and the main thoroughfares are lined with endless car dealerships and used car lots. And don't forget the Burger Kings and Whattaburgers. They're everywhere. The cities all morph from one into the next, and there is absolutely nothing unique to distinguish one from the other. But apparently this is all normal and everyone is okay with that.

While I was there, lazing by the pool in the trailer park compound, I worked through two books, "Twilight in the Desert" by Matthew Simmons, and "The End of Faith" by Sam Harris. Not light poolside reading, but my outrage is now at the boiling point to the obviousness of our predicaments and the utter blind-eye our entire society has towards all of these problems. The issues would outrage any sentient citizen (I'm not a freakin' consumer, dammit!). It almost seems as if a perfect storm of dozens of society-altering issues is brewing, all to rear their ugly heads all at the same time.

At any rate, I highly recommend reading those two books for a wakeup call (although I suspect most of the people here already have read them). I'm really getting freaked out, folks. Things are getting stinky and brown and getting ever closer to the fan blades.

More and more books are coming out foreseeing more and more problems. The environmentalists are saying it's far too late to save anything anyways (ie. species diversity, ice caps, water supplies, etc.), including James Lovelock. The demographers are saying the baby boomer retirement sweep is going to knock us on our collective asses economically anyways. Yeesh.

Well, I'm off to cast my vote in the Canadian national election. Looks like we're going to have a change in power and move to the right again. I'm voting Green nevertheless. Goodbye Kyoto, goodbye social freedoms. The Conservatives are going to knock everything progressive and enlightening here back a few(!) decades or more. Might as well have our politics lined up with American ideologies while we witness the death throes of the easy-driving, consuming credit-madness lifestyle.

Jeez, it was a great party, wasn't it? Too bad this hangover hurts like hell."

Tuesday, January 03, 2006

Oh Six
Other Kunstler writings available at

January 2, 2006
The sheer weight and inertia of American life kept our systems on their feet through 2005, despite a worsening economic climate and some harsh body blows, like the hurricanes that pounded oil and gas production in the Gulf of Mexico. In a way, some perverse law of sociopolitical physics seemed to concentrate all the year's destructive potential in the devastation of New Orleans, Biloxi, and other Gulf Coast towns -- while the mighty din of motoring and cheeseburger sales roared on elsewhere without pause from Cape Cod to Catalina.

First, a little background briefing on where we are at -- to use some of the bad grammar now normative in American life -- before I make predictions (i.e. guesses) about the year ahead.

You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.

This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life, under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied-to-housing started, as in the case of the proverbial rotting dead fish, at the head, the federal reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.

The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.

This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes or they fear the cost of heating a 4000 square foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 t o20 percent asset appreciation) to return. Eventually they will get the picture.

The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. Oil coming into new production was not making up for signs of depletion showing among virtually all the world's major producers. Iran, Russia, Mexico, Venezuela, the North Sea, and, of course, the USA, were all past peak. The big mystery was Saudi Arabia, but their inability to boost production from the 50-year-old fields that comprised their main reserves suggested that they were topping out, too. Which left an energy-hungry world with the need to either A.) make other arrangements for powering industrial economies, or B.) contesting for control of the remaining oil reserves, which were substantially concentrated in the Middle East and Central Asia.

Here, I hasten to remind the reader that peak is peak, meaning right now we are all operating on the basis of a lot of oil flowing around the world. The comfort level is still high. The factories are still humming in China, and the six-lane commuting corridors are still full of big cars around Atlanta, Dallas, Denver, and Minneapolis. The problem is that the oil supply will soon steadily diminish at a rate of at least three percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil. The US entered into the military phase of this turbulence before any other nation. We used our superpower status to set up a centrally-located Middle East garrison in Iraq, under the idealistic cover story that we were removing a dangerous head-of-state and helping to set up a model democracy that would invite us to stick around the vicinity indefinitely, and thus retain some control over the deportment of other oil-rich states in the region.

The foregoing is the background of my predictions for 2006, which will be the year that the hardships and difficulties I lump together as The Long Emergency get some serious traction.

The world oil allocation system is now so fragile that any disturbance in one producing region can send damaging shock waves around the planet. There is no more "swing producer." The US squeaked through the huge loss of oil production capacity this fall by taking oil from our own strategic petroleum reserves and from Europe's. These actions kept oil prices in the high fifty-dollar-range through the holidays, giving Americans a false sense of festive security. Those withdrawals are now over. Global demand for oil is still increasing. The strategic reserves will now have to be refilled (they're called strategic reserves for a reason). This will start oil prices moving upward again -- they already have moved above $61 as of this morning.

I can't predict whether some maniac will drive a Zodiac boat into a tanker in the straits of Hormuz, or fire a shoulder-launched missile at an Arabian refinery. If nothing like that happens, the first year of post-peak will express itself in turbulent oil markets. Fear of not getting enough will rule. Futures will be overbought and then dumped or shorted and then overbought again. This will at least increase the violence of the ratcheting effect in the markets. Overall I expect to see $100-a-barrel oil at some point this year. Last year I made a bet with a friend that oil would end 2005 at $75. I lost the bet. But it is a fact that the price of oil altogether ended the year 40 percent higher than 2004, so it is not as if the markets did not show extraordinary stress.

New laws regulating gasoline mixtures will also contribute substantially to higher gasoline prices (perhaps as much as 40 cents a gallon). So I will predict gasoline breaking through the $4-a-gallon mark sometime this year.

Our natural gas situation is pretty dire. Prices shot up for a while above $17 (per one million btu's), but that was the energy equivalent of $100-a-barrel oil) and based at the time on the enormous damage in the Gulf of Mexico prior to the start of the heating season. The heating season so far as been abnormally mild in the northern US and prices have slumped back to the $11 range -- which is still a lot higher than the $7 range in 2004. Unlike oil, we will get no quick relief from international gas sources if the rest of winter turns sharply colder. We're short of terminals to receive significant quantities of imported liquefied natural gas and they cannot be built quickly (or cheaply). The natural gas markets in the US respond very sharply to current conditions. A warm week and the prices sink. A cold one and the price shoots up. Our gas storage for the year is slightly below 2004 levels. Even if we have a mild winter overall, there will be spikes of cold. Our production is still crippled in the Gulf. Therefore, I'll predict that methane gas prices will spike above $20 sometime before May.

High gasoline, heating oil, and methane gas prices will absolutely kill the housing bubble for reasons I've already outlined. The production home builders will be idle, stuck with huge inventories in places that never should have been suburbanized in the first place. A lot of Americans holding "creative" mortgages -- no money down, interest only, adjustable rate, what-have-you -- will be crushed by the expense of their obligations. Many of them will go bankrupt under new bankruptcy laws that leave no wiggle room for escaping partial repayment. Their houses will flood the real estate markets in an orgy of distress selling. "Greater fools" will snap up these "bargains," failing to realize that many of the logistical liabilities will remain -- namely remote locations and huge heating costs of enormous McHouses -- even if the ownership terms are less hazardous than the previous owner's. At some point in the future, after several flippings perhaps, all those 4000 square foot houses 44 miles outside Denver (or Cleveland, or Seattle) will be seen as the mistakes that they are, and their cash value will reflect that.

With the cratering of the housing bubble, the US economy has to fall on its ass. The global economy is likely to fall on its ass, too, since so much of it depends on the decisions of Americans to take out exotic loans for buying houses they can't afford. Large numbers of jobs will vanish in construction, remodeling, real estate sales, and the various mortgage rackets -- those things precisely related to the recent gains in GDP.

The sheer falloff in new mortgages will send a tsunami through financial markets addicted to continuous supplies of new "money" to preserve the illusion of expansion. I'd called for a Dow-4000 late in 2005. I think that was just an error in timing, and still call for the Dow to sink into that range, or worse, in 2006. This will represent a moment of painful clarity for market professionals, as they realize that an industrial economy and the finance that serves it must be based on the expectation of generating real future wealth, not on zero-sum rackets, games of monetery musical chairs, or casino legerdemain. Hedge funds, which depend on predictable stability, will be especially vulnerable. They will certainly take some large banks down with them when they go. I'll call for the so-called government sponsored entities of Fannie Mae and Freddie Mac to groan under and then drown in a sea of non-performing loans, probably with overtones of criminal irresponsibility.

If these things occur, ugly things would happen to the dollar. I would predict an episode something short of hyperinflation -- say a rapid 30 percent drop in dollar value -- with a later deflation in the price of things like houses, paintings by Childe Hassam, and many consumer goods. Which means that standards of living will fall across the board as incomes vanish with jobs and food and energy prices rise -- while Americans try to shed their houses, at the same time that consumer products sit unsold on the shelves of WalMart, Target, and Best Buy. This will spell the beginning of the end for the chain store universe.

The commercial airline industry is already whirling around the drain. 2006 will send it decisively down that drain. Since we cannot do without aviation in a nation as large as the US (with train service on the level with Bolivia) then the government may have to take over the crippled air routes. If that happens, then service will certainly be greatly diminished. Fewer people will be flying under the circumstances, anyway, but there is no reason to believe that this will all occur smoothly. Among other things, huge pension obligations would remain to be worked out.

By similar reasoning, I see an excellent chance for General Motors and Ford to go out of business in 2006. Sales of their stupid SUVs were already tailing off in the second half of last year, and they are not positioned to offer much of anything else. Anyway, a middle class groaning under insupportable debt and bankruptcy is not likely to be assuming new time payments for exactly the kinds of vehicles they would be insane to depend on.

As America roils in economic pain, factory workers in China will be thrown out of work. They will be extremely pissed off, and as their appeals go unappeased, they might start making political trouble in their country. That could easily stimulate Chinese leaders to divert their nation's attention with a compelling military project -- say some moves into the oil-rich former Soviet lands to China's west. Sooner or later, China eventually will go cuckoo from a shortage of fossil fuels. It only remains to be seen how this will express itself. So far it has only done so in terms of an aggressive outreach in oil contracts with producers like Venezuela and Canada. But those arrangements were based on a peaceful world and a peaceful China.

I have no idea what will happen with Iran. Their leader Mr. Mahmoud Ahmadinejad, is clearly a maniac -- calling for Israel to be removed to Alaska, for instance. But here I invoke my allergy to conspiracy theories by saying I do not necessarily expect any US or Israeli strikes against that country. One could argue that Iran could comfortably kick back and watch America get tortured by the insurgency next door in Iraq, and I think they will do just that through 2006. The nuclear card is wild, however, and anything could happen if they keep slapping it on the table.

Which brings us to the extremely sore subject of Iraq. I maintain that our reasons for being there have not changed one bit, namely to make sure that we don't lose access to Middle East oil in any shape or form. Now my stating that does not mean I think we will necessarily succeed. The creation of a constitution in Iraq and holding elections based on it amounted to an admirable stunt, but I tend to think this experiment will dissolve into sectarian violence and civil war, probably within 2006, no matter what else we do. I predict that circumstances will impel us to withdraw from the Iraqi cities but that we will not give up large bases near the oil production areas of the north and south, and that we will continue to control the air space over Baghdad. Our position in that country would then devolve to a sort of Fort Apache situation. I imagine the vast emptiness of the desert combined with air cover will afford us some protection. But our presence there will only inspire more turmoil, hatred, and jihad elsewhere.

King Abdullah seems to be in pretty good health, but he is going on 82. I predict that there will be fissures in the kingdom, and continued confusion about their oil production capacity. But by the end of the year it ought to be clear that they have not increased their output. Peak for Saudi Arabia may be the beginning of the end of the Saud kingdom -- since peak itself is highly destabilizing.

In Europe, we are beginning to see some of the first tectonic heavings over energy as Russia jerks poor Ukraine around on their natural gas shipments. England has managed to piss away all the former advantage of their North Sea oil bonanza and they now face a future of dependence on Russian gas plus the bankruptcy of their remaining industrial base. France enters 2006 somewhat more energy self-sufficient, at least as far electricity is concerned, since 70 percent of it comes from nuclear reactors. The other nations of Europe are apt to get restive this year, and may more actively join the worldwide contest for access to fossil fuels. At the same time, they will be struggling to contain large Muslim immigrant populations and I would be surprised if there were fewer problems in 2006 than last year -- with the riots in France and the London subway bombings. We tend to write off Europe as a region of sclerotic cafe layabouts, but for the time being many of these nations can still mobilize potent military forces if they have to defend vital interests. Generally, I predict 2006 will see a shift in power to the big energy bear, Russia. It's industrial infrastructure is otherwise decrepit. It's armed forces are bankrupt. But it has at least enough nuclear arms to blow up the world a few times over, so that, combined with its oil-and-gas assets, require us to take it very seriously.

Japan has nearly been forgotten. It now imports 95 percent of the fossil fuel it needs to run itself. God knows what they will do if geopolitical turmoil shuts down the shipping lanes that bring a steady stream of oil tankers to the islands. They are capable of mobilizing to defend their vital interests. We just haven't seen them do it since the 1940s. What role Japan will play in the Pacific remains a mystery, especially in relation to the growing power of China. Perhaps some of this oriental mystery will be revealed in 2006. Perhaps Japan will enter into some kind of Asian co-prosperity sphere alliance. Japan's economy will otherwise be subject to the severe economic strains emanating out of America.

South America is going loco on us. They will probably never amount to a united front, but one-by-one they will become more hostile to us, in the manner of Venezuela's Hugo Chavez and the newly elected Evo Morales of Bolivia, a former coca farmer who aims not to allow America any more say in what crops his people can grow. Chavez can jerk America around on oil imports if he wants to, but probably not without risking his health and position. Mexico's economy is dependent on ours, only Mexico will suffer by another order of magnitude if the US economy turns down in a big way. In 2006 I think we'll see the first signs of overt hostility between our two nations as the US desperately tries to come to grips with the flow of illegal immigrants, and Mexico attempts to divert its suffering peoples' attention by making threats of incursion and reviving claims to lands along the border. We could see the first shots of what could turn into a huge ongoing border nuisance, perhaps even a quasi-war. Meanwhile, Mexico's premier oil field, Canterall, has entered depletion. They depend on imports of natural gas from us, and under the rather insane terms of NAFTA, we in the US depend on imports of gas from Canada to make up for the stuff we have to sell to Mexico. Those relationships may be subject to review.

Here in USA, I predict that we will be diverted by a fantastic circus of congressional hearings and court proceedings. It will be scandal-o-rama for the Bush administration and the Republican party. The domestic spying issue will be a huge stink (I recognize I defended it on this blog), but it raises issues that our political system cannot digest right now. The Abramoff scandal is going to be huge and may take down twenty congressmen. Karl Rove will probably join Lewis "Scooter" Libby in the indictment pen for the Valarie Plame incident. Tom Delay is going to have a very ugly trial in Texas, and senate majority leader Bill Frist may end up being prosecuted for stock sale irregularities. These shows may so successfully entertain the public -- and the cable news impresarios -- that we will fail to notice the rising predicament of oil and gas prices and the cratering of the suburban sprawl economy (just as Watergate -- a very satisfying melodrama for those of us who were young reporters in 1973-4 -- diverted the US from the first throes of the oil crisis). All this activity will tend to degrade the standing of the Republican party to "junk" status. But there is no sign that the Democrats offer an alternative world-view to the "non-negotiable American way of life."

Political circuses will not completely divert the middle class from its own suffering, as their mortgages devour what is left of their financial lives. But as they sink in fortune and hope, I predict we will see a turning of all the recent celebrity envy -- and the infotainment value spun off it -- into a vicious hatred of the rich and famous and a new desire not to emulate them, but to punish them. Look out, Nicole Ritchie and the Donald Trump. The grandchildren of Ozzie and Harriet will be looking to eat you for dinner starting in 2006

Monday, January 02, 2006

2006: Escalation of the Resource Wars
by Stirling Newberry
Mon Jan 02, 2006 at 06:40:39 AM PDT
(Promoted from the diaries by DarkSyde)

The march of Iran to deterrent state status are prompting "use it or lose it" pressures for preventative - that is aggressive - strikes against Iran and its atomic weapons program, as Iran declares that it has a right to enrich Uranium on its own soil. The Ukraine-Russia gas stand off escalates as Russia accuses Ukraine of stealing Natural gas. In Iraq insurgent threats keep a major refinery shut down in Iraq.

On this, the first working day of the New Year, we are already getting a good stiff taste of the running theme of 2006. If 2004 and 2005 saw resource inflation, 2006 is the year when resource rich countries begin using those resources as weapons, and resource poor countries begin taking aggressive steps to secure resources. The current world market approach to energy is going to break down, as more and more nations are forced to jostle for position.

Somewhere in the next two years it will dawn on the American public that we live in the pre-war, not post-war, era, and that Iraq was a foreshock.

For reasons outlined before, an attack against Iran is unlikely at this time - the danger zone begins in July and runs through late October - because that is the point where a spike of popularity and power will be necessary for Bush, if it seems he is going to lose the Congress. The next danger zone is next year, as he needs to reframe the debate should he lose congress. However, before there are large airstrikes, there must be an escalating campaign of crowding Iranian airspace, in hopes that a pilot will give the US an excuse for further action.

But the larger picture needs to be looked at.

First, resources are fundamentally different from manufacturing, in that manufacturing is wide spread, but resiliant. Resources are concentrated, but brittle. This makes a difference both during escalating tensions, and for the possibility of all out war. The resiliant nature of manufacturing means that pin prick military actions are generally worthless. Bomb one plant, and the equipment will be moved to another. Extraction is the reverse - it is rife with fragile infrastructure that is very worth destroying - oil refineries, petrol storage facilities, oil and gas pipelines and nuclear reactors for enriching Uranium - are all fragile and expensive, and generate economic benefit far out of proportion to their size.

Thus during escalation, manufacturing is not targetted, but resource concentrations might be. Look at China's handling of Taiwan. The Chinese could easily begin attacking Taiwan - but pinprick attacks would not significantly undermine Taiwan's economy or deny it crucial components. It also means that the chance for all out war is higher over resources than manufacturing. This is because a general war will destroy manufacturing, but it will leave the raw resources in tact. Manufacturing is about buildings and people -war destroys both. Resources are about land, and war, while it wounds the land, seldom kills it.

These two factors exacerbate each other - faster escalation, and greater temptation to war mean, more wars. Whether over water, oil, arable land, coal, gold, diamonds or any other economic rent - resources bring greater geo-political uncertainty.

In the current world economic environment, most commodities are traded on world markets. The difference between buying from two different suppliers for almost any commodity is a difference in the time and cost of shipping, and little else. Standardized contracts, large futures markets, sophisticated financial systems, logistical and information networks make it possible to hedge and balance resource prices. This highly liquid and highly fluid system allows shocks to be buffered. For example, when Katrina knocked out oil and gas production equal to the current output of Iraq, it was possible to use the Strategic petroleum and gas reserves to spread the pain, and prevent a sharper spike in prices.

In a world where nations use the resource card to push political agendas, particularly the resource scarcity card, nations begin seeking exclusive contracts and stable supplies. The Chinese have been working to acquire exclusive oil contracts. This is only worthwhile if the cost of an exclusive contract - higher than a hedged free market supply - is insurance against the cost of supply disruption. If it is cheaper to buy the exclusive deal, than get the insurance that there will be no disruption, then it is worth inking the deal. As the supplies of oil and gas that are free for exploitation dwindle, the pressure for more and more countries to follow this road grows.

2006 will see the increase in flare ups over this process. As countries lock in supplies, they, by definition, lock others out.

In 2005 this effect caused diplomatic jostling, but few open crisis points opened. Now however, as industries accept that energy prices, and commodity prices, are going to remain high for the foreseeable future, there is going to be a drive to secure commodities before the inevitable rise in prices. This is so because energy can be used to substitute for most commodities, as energy prices go up, the substitution moves the other way - don't buy lower quality ore and use more energy to refine it, buy higher quality ores. As prices rise, more and more businesses will find, on the margins, that it is better to switch than fight. Those who realize this first will want to lock in supplies for the forseeable future before others do. Futures prices for commodities are rising to be in line with spot prices across the board.

The continuation of an inflationary policy in the United States - the Federal Reserve has said that it is not going to be aggressive about inflation fighting and is willing to accept 5% real consumer inflation and higher than comfort zone inflation ex-housing, energy and food - means that more and more nations are going to realize they are in direct competition with the US for prosperity, and governments that are less accomodative should not only continue to come to power - but that those that have not made the break are going to be under increasing pressure. While Europe is moving towards a more economically accomodative stance towards the US politically, practically everywhere else is not. And the European Bushite accomodationists are going to find that they are not treated any better than Blair has been. Gratitude is monopolar in Bush's Washington.

What we will see then is more and more of the benefits of trade with the US will flow to a smaller and smaller number of places. This will mean that in nations that trade resources with the US, there will be more pressure to spread that wealth through the country. This will lead to populist regimes where there are functioning, or semi-functioning, democracies, and increasingly aggressive rebellion - such as the FARC in Columbia - where there is not.

Fears about the US dollar - or about oil trading in Euros, are however, overblown. Instead, instability will help the dollar, as "flight to safety" will drive risk averse parked money here to the US. It doesn't matter what oil is traded in - the pound crumbled in the 1920's even though it was the unit of account for major commodities - but instead where the money is parked afterwards. Trading in euros will give Iran and other nations a hedge against another move on the dollar, but this is not significant. What is more significant is that there is a sharp willingness on the part of major dollar holders to move to Euro based stocks and bonds. The trigger point will be a European recovery. If europe can recover from its current economic slump, and raise rates, this will be a capital magnet. There are those that worry that this is destined to happen soon. However, the likelihood is that it will not happen until late in 2006 or early 2007, which means that the pressure on the greenback is still two years away.

The real tinderbox is not mechanisms, but control over the oil itself, and US attempts to keep nations that are oil holders vulnerable to US military pressure. Iran is getting attention now, but it is not a state which is on the verge of violence. The middle east may be a tinderbox, but the core of this tinderbox is, of course Iraq. Had Saddam been in power, we would currently be dealing with a containment problem - higher energy prices make it harder to keep a dictator locked out of prosperity. As it is we have created a failed state, with a series of parties jocking for creating an oligarchic state with their party at the apex. This means that Iraqis are going to be going broke during an oil boom, as parties cut off oil development, in the hopes of getting enough tinder dry enough to kindle the fire of open chaos.

But Iraq is merely going to be the most visible flash point, the one which we hear of, but are carefully not shown. Around the world there are going to be increasingly violent and widespread agitations, as many countries will be forced to raise energy prices - almost universally subsidized so that people can have access to mechanization and the freedom it btrings - and thus being forcing people on the margins out of affluence. These people will not take it lying down.

This is going to be basically invisible to the US public, which will be pressing to make matters worse. There is an entire generation that wants to retire - that means a very high pressure to keep housing prices high for just a bit longer, so they can hit 30 years and retire. It means increasing pressures for protectionism, so they can keep their high paying position for a bit longer, hit thirty and keep their pension. There is going to be increasing pressure to close the borders, as the disorganized working class - used to the fat years of the housing boom - suddenly finds that jobs are getting harder to come buy for the pickup truck set.

The US is also going to experience a short term upward movement in stocks, as the huge volume of money looking for a home comes to rest here. The more uncertainty out there, the more people flee to the safety of the US. However, because the underlying consumer demand is not there to provide profits at higher stock prices - this upward surge will both have a very hard ceiling and a relatively short life. While few are predicting a crash for '06 - it is not beyond reason for the Dow to turn in another losing year, and have inflation adjusted gains in stocks be zero.

This will add to the pressure to allow cashing out from houses, and it this, in turn, will add to the pressure to keep rates lower than they should be, which will accelerate the inflationary building boom of capital in China where it won't cause inflation here directly - and therefore accelerate the resource tensions. This year is the year where conflict over resources breaks out into the public mind, because it is the year when flash point stand offs become common place.

In short, there is going to be pressure in the US to find a way to pass the costs on to others. Which means that the year is going to close out even more turbulently than it began, and will seem more uncertain at its close.
Published on 11 Jan 2005 by

The Neurobiology of Mass Delusion
by Jason Bradford

History is replete with examples of social organizations, whether a business or a nation, that failed to perceive the realities of a changing environment and didn't adapt in time to prevent calamity. Hubris and a self-reinforced dynamic of mass delusion characterize the waning phases of these once powerful groups. In hindsight we ask, "What were they thinking? Wasn't the situation obvious to everyone? The evidence is so clear!" Here's the question we should ask next: "Is history now repeating itself?"

Anyone familiar with the concepts of overshoot, resource depletion, global climate change, mass extinction, and related ills, wonders why the media, church groups and political leaders do not vigorously discuss these topics. By contrast, those unfamiliar with these issues assume that because they are not covered closely, the problems must not be too worrisome. My view is that science and history are correct, and that we are headed for a major planetary disaster as far as humans are concerned. I've tried to understand why the human brain, on a collective level at least, is apparently incapable of dealing with obvious problems. Here's what I've learned.

For a clue to how the mind works, imagine getting startled in your own home. A shadowy figure lurking in a doorway elicits a powerful jolt to your system. It is only your spouse, of course, but it takes about half a second to realize that. This reveals what neurobiologists can now see with modern imaging techniques: visual signals get processed in more than one brain region, and the signal first arrives at the primitive hindbrain where it can respond before we are conscious of the threat. Playing runner up is the neocortex, our lumbering master of rational thought. A false alarm is inconvenient, yes, but a necessary burden. Without that startle response, a lion may have eaten us.

Emotions motivate and guide us. Fear of the lion prepares the body for fight or flight. Love binds individuals into cohesive units greater than the sum of their parts. When we succeed or fail at a task, or are praised or scorned for a particular behavior, emotional reactions are our rewards (feels good) or punishments (feels bad) and become the guideposts for our future thoughts and actions. The neocortex works with our emotions to solidify our plans. We dream about a goal and anticipate the emotional rewards of realizing it. Our self-esteem can be wrapped up in these goals and plans. They become our "mental models," setting what is important in life and largely defining who we think we are. This is how we become determined to "stick with the program." Mental models may range from the very short term and mundane, such as a plan to jog 12 laps, to lifetime goals and worldviews, such as a career path and religious beliefs.

Another clue about how the mind works comes from a famous experiment on the nature of the brain duality. Two films were made; both included a basketball team passing a ball among them. In one film a woman with an umbrella walks through the scene, in the other film it's a gorilla. People were randomly shown one of the films and randomly told either to count the number of ball passes made or just watch. Now consider the mindset of the counters. They have a goal, they bind this goal to an emotional reward, and they anticipate getting the "right answer" and "feeling good." All of those told to just watch and report anything interesting about the film recall either the woman with an umbrella or the gorilla. Over a third of those counting missed the woman and over a half missed the gorilla.

When mental models are tied to rewards, we fear and rebel against their disruption, aiming to avoid disappointment or disillusionment. Because it receives and processes sensory input faster, our emotional mind can censor from conscious awareness information that may interfere with the task required to make the goal. If a gorilla isn't involved in actually passing the ball, then don't pay attention to the gorilla. Depending upon circumstances, this focus can be advantageous or dangerous. If a mathematician is working on the proof of a theorem in the safety of his office that is fine, but doing so on a busy street can be deadly.

A changing environment, such as a busy street, requires us to be open to new sensory inputs and to be willing to modify or even dismiss outmoded mental models. Rigidity of mental models in the face of countervailing information is called denial. Given what we now know about the structure and function of different brain regions, we can understand the physiological roots of denial. The data nullifying a cherished mental model are systematically filtered out before the conscious brain is even aware of them. The expression, "Hear no evil, see no evil, speak no evil," exemplifies this censoring process.

The conscious brain is not a simple dupe however. It can actively participate in the act of denial. This is termed "rationalization," and involves complex neocortical functions. People can erect fancier houses of cards and hold on to their cherished beliefs even in the face of overwhelming contrary evidence. Many will admit that is what they are doing by resorting to the expression, "Well, I just have faith," even when the subject is not overtly religious. This point in a discussion signals that the mental model being challenged is very important for the person, and to remove it would cause a serious and painful identity crisis. Who wants that kind of grief?

You can witness this brain duality in operation while watching debates between some of the dominant personalities of our culture, mainly those representing large financial and business interests, and the concerned watchers and interpreters of physical reality, mainly scientists in the realms of ecology, geology and climatology. Because the scientists are challenging fundamental assumptions of our culture, such as the basis for "progress" and the consequences of "economic growth," many cannot agree with the scientists without losing their identity. This threat to the mental model is simply too great to accept. Hence you encounter two modes of response from those accepting of the prevailing paradigm: (1) the scientific data are not reliable, and (2) faith in technological progress and/or human ingenuity.

So when wondering why so many people just "don't get it," (oil depletion, overshoot etc.) whether they are your local politician or great aunt, realize there is a physiological mechanism that may preclude having a rational discussion on certain topics. The truth can only be pushed so far before rebellion occurs, hence the phrase, "To kill the messenger." Before many folks can learn and incorporate the lessons of ecology, most could use the services of a good shrink. Someone to call them on their bull and get them to face their faulty, contradictory, and destructive thought patterns.

I fear that the world has neither enough shrinks nor enough time to wait for the long process of psychotherapy to work. Furthermore, enshrined institutions embody dangerous mental models within their various charters, goals and mission statements. If anyone happens to have a crisis of confidence, these institutions work to re-assimilate the disenchanted, quietly dismiss them, or destroy their reputations. Of course these are the worst possible responses. As Jared Diamond explains in his book "Collapse," history is replete with societies that failed to question their own assumptions and create new paradigms. Instead of making life possible in a changed environment, they are part of archeology's trash heap.

Those who know about "Peak Oil," monetary debts, climate change, militarism, overpopulation, corporatism, soil loss, aquifer depletion, persistent organic pollutants, deforestation, etc., realize we are at a major historical juncture now. Since we know it is past time to change our culture, the question we have is whether most people will bother to listen and create the necessary transition in a rational, non-violent manner.

For those who find the terms in the previous paragraph somewhat mysterious, try this. Research the "laws of thermodynamics" and compare them to the cultural imperative for "economic growth." See if you can recognize and then resolve the tension between the two in your mind. If you can't resolve the tension, decide which one of these has to go. Look back at the terms in the previous paragraph and ask how they relate to what you've just learned. Caution: afterwards you may need a good shrink.