Petrodollars and Nuclear Weapons Proliferation: Understanding the Planned Assault on Iran
by Michael Keefer
February 10, 2006
Iran has been in the gun-sights of George W. Bush and his entourage from the moment that he was parachuted into the presidency in November 2000 by his father’s Supreme Court.
A year ago there were signs, duly reported by Seymour Hersh and others, that the United States and Israel were working out the targeting details of an aerial attack on Iran that it was anticipated would occur in June 2005 (see Hersh, Gush Shalom, Jensen). But as Michel Chossudovsky wrote in May 2005, widespread reports that George W. Bush had “signed off on” an attack on Iran did not signify that the attack would necessarily occur during the summer of 2005: what the ‘signing off’ suggested was rather “that the US and Israel [were] ‘in a state of readiness’ and [were] prepared to launch an attack by June or at a later date. In other words, the decision to launch the attack [had] not been made” (Chossudovsky: May 2005).
Since December 2005, however, there have been much firmer indications both that the planned attack will go ahead in late March 2006, and also that the Cheney-Bush administration intends it to involve the use of nuclear weapons.
It is important to understand the nature and scale of the war crimes that are being planned—and no less important to recognize that, as in the case of the Bush regime’s assault on Iraq, the pretexts being advanced to legitimize this intended aggression are entirely fraudulent. Unless the lurid fantasies of people like former Undersecretary for Arms Control and International Security and now Ambassador to the United Nations John Bolton count as evidence—and Bolton’s pronouncements on the weaponry supposedly possessed by Iraq, North Korea, Cuba and Venezuela show him to be less acquainted with truth than Jean Harlow was with chastity—there is no evidence that Iran has or has ever had any nuclear weapons development program. Claims to the contrary, however loudly they may have been trumpeted by Fox News, CNN, or The New York Times, are demonstrably false.
Nor does there appear to be the remotest possibility, whatever desperate measures the Iranian government might be frightened into by American and Israeli threats of pre-emptive attacks, that Iran would be able to produce nuclear weapons in the near future. On August 2, 2005, The Washington Post reported that according to the most recent National Intelligence Estimate (NIE), which represents a consensus arrived at among U.S. intelligence agencies, “Iran is about a decade away from manufacturing the key ingredient for a nuclear weapon, roughly doubling the previous estimate of five years” (Linzer, quoted by Clark, 28 Jan. 2006).
The coming attack on Iran has nothing whatsoever to do with concerns about the proliferation of nuclear weapons. Its primary motive, as oil analyst William Clark has argued, is rather a determination to ensure that the U.S. dollar remains the sole world currency for oil trading. Iran plans in March 2006 to open a Teheran Oil Bourse in which all trading will be carried out in Euros. This poses a direct threat to the status of the U.S. dollar as the principal world reserve currency—and hence also to a trading system in which massive U.S. trade deficits are paid for with paper money whose accepted value resides, as Krassimir Petrov notes, in its being the currency in which international oil trades are denominated. (U.S. dollars are effectively exchangeable for oil in somewhat the same way that, prior to 1971, they were at least in theory exchangeable for gold.)
(If you haven't read William Clark's explanation re the connection between an attack on Iran and the Iranian oil bourse go here: http://www.energybulletin.net/7707.html )
But not only is this planned aggression unconnected to any actual concern over Iranian nuclear weapons. There is in fact some reason to think that the preparations for it have involved deliberate violations by the Bush neo-conservatives of anti-proliferation protocols (and also, necessarily, of U.S. law), and that their long-term planning, in which Turkey’s consent to the aggression is a necessary part, has involved a deliberate transfer of nuclear weapons technology to Turkey as a part of the pay-off.
Prior to her public exposure by Karl Rove, Lewis ‘Scooter’ Libby, and other senior administration officials in July 2003, CIA agent Valerie Plame was reportedly involved in undercover anti-proliferation work focused on transfers of nuclear technology to Turkey that were being carried out by a network of crooked businessmen, arms dealers, and ‘rogue’ officials within the U.S. government. The leaking of Plame’s identity as a CIA agent was undoubtedly an act of revenge for her husband Joseph Wilson’s public revelation that one of the key claims used to legitimize the invasion of Iraq, Saddam Hussein’s supposed acquisition of uranium ore from Niger, was known by the Bush regime to be groundless. But Plame’s exposure also conveniently put an end to her investigative work. Some of the senior administration officials responsible for that crime of state have long-term diplomatic and military connections to Turkey, and all of them have been employed in what might be called (with a nod to ex-White House speechwriter David Frum) the Cheney-Bolton Axis of Aggression. Thanks to the courage and integrity of former FBI translator Sibel Edmonds, there is evidence dating from 2002 of high-level involvement in the subversion of FBI investigations into arms trafficking with Turkey. The leaking of Valerie Plame’s identity as a CIA agent may therefore have been not merely an act of revenge for her husband’s contribution to the delegitimizing of one war of aggression, but also a tactical maneuver in preparation for the next one.
George W. Bush made clear his aggressive intentions in relation to Iran in his 2002 State of the Union address; and his regime’s record on issues of nuclear proliferation has been, to put it mildly, equivocal. If, as seems plausible, Bush’s diplomats had been secretly arranging that Turkey’s reward for connivance in an attack on Iran should include its future admission into the charmed circle of nuclear powers, then the meddling interference of servants of the state who, like Plame and Edmonds, were putting themselves or at least their careers at risk in the cause of preventing nuclear weapons proliferation, was not to be tolerated.
The ironies are glaring. The U.S. government is contemplating an unprovoked attack upon Iran that will involve “pre-emptive” use of nuclear weapons against a non-nuclear-weapons-holding state. Although the pretext is that this is necessary to forestall nuclear weapons proliferation, there is evidence to suggest that planning for the attack has involved, very precisely, nuclear weapons proliferation by the United States.
It would appear that this sinister complex of criminality involves one further twist. There have been indications that the planned attack may be immediately preceded (and of course ‘legitimized’) by another 9/11-type event within the U.S.
Let us review these issues in sequence.
Friday, February 10, 2006
"February 9, 2006
by Mike Shedlock ~ "Mish"
Illinois, U.S.A.
Risk Comparison: China vs. U.S.
Jim Jubak at TheStreet.Com is writing "The New Risk From China: Deflation":
"Could China, the driver of global inflation in commodities such as crude oil and iron ore, be looking at domestic deflation in 2006?
"Deflation effectively took Japan out of the global economy for more than a decade, slowing global growth and increasing global economic volatility. Serious deflation in China has the potential to be a lot more dangerous. At its least damaging, it would flood the world's markets with even cheaper Chinese goods. At the worst, it could stall the Chinese economy, a major driver of global growth, and even send the country into one of its periods of instability.
"All that from a change in prices? You betcha.
"A Chinese economic think tank at the country's top economic agency, the National Development and Reform Commission, raised the red flag on deflation on Jan. 12. Since then, Chinese officials have repeatedly gone out of their way to pooh-pooh the danger. So much effort spent on denial, of course, means that it's a problem that the communist regime takes seriously…
"Deflation in the domestic Chinese economy would pressure companies to cut wages to keep up with falling prices. That, of course, would depress demand. Chinese consumers would have less money for purchases, which would depress prices further, which would lead to further wage cuts. Once a deflationary cycle like that gets started, it can be terribly hard to reverse. Just ask the Japanese, who are now emerging from years of deflation and no economic growth.
"China wouldn't survive a bout of deflation anywhere nearly as well as Japan. Japan is an amazingly cohesive society; China, even in the midst of an economic boom, is deeply fissured. Deflation would strike hardest at precisely those in the countryside who have been left behind in the current boom. The richest 10% of Chinese control 45% of the country's wealth, according to Chinese government figures, and the poorest 10% hold about 1%.
"About 250 million people in the country still earn less than $1 a day -- the official definition of poverty in China -- and 700 million live on less than $2 a day. Incomes among rural Chinese have actually declined in the last four years, the World Bank reports.
"This rural 70% of China's population has an average income of just $318 a year. If benefits like superior schools and medical care are included in the calculation, the average urban income is a huge seven times greater than the average rural income, the Chinese Academy of Social Sciences has calculated.
"Rising income inequality has led to a rising tide of protest. There were, officially, 87,000 public disturbances in 2005, up 6% from 74,000 disturbances in 2004, according to the Ministry of Public Security. (And you know that if that's the official number, the actual level of protest is much higher.)
"All this, mind you, while the economy is booming and deflation is just a story told to scare naughty economists at bedtime. How did China get into this mess?
"Start with an economy built around export growth and feed it with lots and lots of cheap money. And then ignore any signals that the rudimentary, somewhat free market might be sending you about overinvestment or overcapacity…
"China's GDP grew 9.9% last year, according to Chinese government figures. That's after 10.1% growth in 2004 and 10% in 2003.
"On the other hand, China has achieved this kind of growth only through massive overinvestment in the export sector. Even after a yearlong campaign to rein in investment in fixed assets -- you know, things like steel mills and aluminum foundries -- investments like these grew by 25.7% in 2005…
"The result has been massive overcapacity in fixed assets. Look at coke producers -- capacity of 242 million tons exceeded demand in 2005 by 100 million tons. Or steelmakers -- capacity exceeded demand by 120 million tons. Production capacity in China's auto industry now exceeds annual sales in China by 2 million vehicles. The government has identified 10 sectors -- including aluminum, autos, cement, coke, steel and textiles -- with capacity problems.
"Of course, this excess capacity hasn't ended plans to add even more capacity in these sectors. About 120 million tons of new coke capacity is under construction. New steel mills with capacity of 70 million tons are being built.
"Companies can raise money to build clearly unnecessary and unprofitable factories, because all too many Chinese banks continue to make loans on the basis of political connections, rather than market forecasts. Put a local entrepreneur and his local political patrons from the district government in the same room with a banker, and a loan pops out.
"How do you make a profit if you're doing business in an industry with 100 million tons of spare capacity? Export, export, export -- to any international market that will buy your product. And cut your prices until the buyers can't resist. At home, cut prices and cut them again.
"See how a system like this might produce both higher global prices for raw materials and lower prices for finished goods abroad and at home? You get global commodity inflation and domestic price deflation.
"China hasn't seen domestic deflation yet. But the trends are enough to worry Beijing's economists. Consumer price inflation fell to 1.8% in 2005, from 3.9% in 2004. (Like all other Chinese statistics, regard this one with extreme skepticism.) Prices, according to the National Development and Reform Commission, could start to fall in the second half of 2006…
"Watch instead the news on domestic protest. If the tide of protest keeps rising, if the repression gets more violent, you'll have a pretty good idea that the poorest of the Chinese are feeling the bite of deflation. The big danger is that the regime will feel so much pressure to restore order before the 2008 Beijing Olympics, meant as a national showcase, that it will resort to teaching the protesters some large-scale lesson like that imposed by the tanks of the Red Army in Tiananmen Square in 1989.
"Actually makes you root for inflation, doesn't it?"
Is China at Risk of Deflation?
Yes, for the very reasons Jim Jubak cites:
• Massive overcapacity in fixed assets
• Plans to add even more capacity in these sectors
• Too many Chinese banks continuing to make loans on the basis of political connections.
What Next?
In "China: What Next?" Andy Xie also mentions the overcapacity situation in China:
• "Overcapacity is causing investment slowdown: I estimate that fixed investment in industries that are experiencing overcapacity contributed 40-50% of GDP growth in 2005. Without other components of the GDP accelerating, China's economy should slow in 2006
• "Spending more on infrastructure won't reverse the trend: The infrastructure areas that can justify more investment account for 4% of total investment, I believe. Spending more there won't reverse the trend
• "Stimulating property again could lead to another wave of bad debts: Giving property a second wind is a popular proposal for stimulating the economy. Cutting mortgage rates could boost sentiment. However, it would mostly encourage more speculation. The industry is already swollen and highly speculative."
Is Deflation Bad?
The idea that deflation is necessarily bad is where Jubak's analysis falls apart. When he states, "Deflation would strike hardest at precisely those in the countryside who have been left behind in the current boom. The richest 10% of Chinese control 45% of the country's wealth, according to Chinese government figures, and the poorest 10% hold about 1%," for starters I fail to see how the percentage of wealth control is all that relevant in and of itself. I will get to the reason for that statement in just a bit, but first let's show without a doubt that the inequality problem is actually worse in the United States.
Wealth Inequality
According to Wealth Inequality: Data and Models, published by Federal Reserve Bank of Chicago on Aug. 17, 2005:
"U.S. wealth is highly concentrated and very unequally distributed…The top 1% hold one third, and the richest 5% hold more than half of total wealth. At the other extreme, a significant fraction of the population holds little or no wealth at all."
It seems the concentration of wealth is the United States is even greater than that in China.
Would deflation hit China's rural populations hardest? Let's first address the question at the very heart of the matter. Who does deflation hurt the worst? The answer is easy: those heavily in debt and those dependent on forever-rising property values. Having answered the critical question, let's see how China fares in deflation versus how America would fare.
Risk of Chinese Deflation
Is deflation going to hurt farmers left in the countryside in China? I think not. What debts do they have? Furthermore, they would welcome lower prices on goods they buy now. Down the road, they certainly would welcome lower property prices in the cities. I doubt demand or prices paid for their produce would drop much from here. People do have to eat. In practice, most of China's private citizens would benefit, as China's savings rate is enormous.
Deflation benefits savers.
Deflation would primarily hurt businesses sitting on malinvestments financed with debt. Let's also not forget China is a real growth story over the long haul. The problem for now is that China is too heavily dependent on overburdened and debt-ridden U.S. consumers. Lacking sufficient internal demand, there is simply nowhere for excess Chinese capacity to go. We discussed this idea in depth in "Thoughts on the Handover Fallacy."
Risk of U.S. Deflation
Now let's turn to the United States. Who would deflation hurt most? Unfortunately, the answer is the masses: those struggling from paycheck to paycheck, and especially those who are upside down on a house mortgage and heavily in debt on their SUV and credit cards. Deflation in America would help the cash-rich at the expense of those whose wealth is especially in assets like houses. Hopefully, it is readily apparent that the U.S. consumer, deep in debt with a negative savings rate, is actually at far greater "lifestyle risk," relatively speaking, than someone from China. There is also no going back to the rural farm option.
Thus, it's not wealth distribution per se that determines who is most at risk, but debt distribution and savings rates.
Free Market Comparison: China vs. U.S.
Jubak writes of a "rudimentary somewhat free market" in China. Heinz Blasnik, a friend of mine living in Austria, had this response when I e-mailed him the article:
"I think there is FAR MORE economic liberty in China than in the West. This is confirmed by just about anyone who has ever been there. There is, for instance, simply NO welfare state at all. When you go into business, you can expect to be able to do as you please without state interference, aside from the occasional corrupt local bureaucrat on the take (and those live dangerously).
"A good friend of mine is Chinese. He regularly travels between Austria and China and also confirms this view. His father was actually a big party apparatchik in Mao's time. While there's still a large and inefficient state sector (state-owned companies living on subsidies), all the rest is a free-for-all in wheeling and dealing that we only know from the history books."
Misconceptions About China
• The idea that capitalism is stronger in the United States than China is, for the most part, a myth, or at least highly overrated
• Wealth inequality is excessive in China. While that might be true, it is worse in the United States
• The idea that deflation would be bad for China is misguided. There would be winners and losers in China, but because of the high savings rate there versus the negative savings rate in America, because of serious overleverage to housing in America, and because of enormous consumer debt levels in America, a serious bout of deflation would be far worse for America than China.
Conclusions
• Deflation, whether here or elsewhere, would be bad for some people (those heavily in debt and/or those dependent on property and asset bubbles) but generally good for everyone else
• Stoking the fires of inflation to keep global reflation alive would only put off the overcapacity problems, while making matters worse down the road
• Malinvestments in the housing, auto, and retail sectors seem most at risk in the United States. In China, the property, aluminum, auto, cement, steel, and textiles sectors appear to be most at risk
• A global slowdown has begun, and the popping of various property bubbles is at the heart of it
• The downside risks are greatest in countries with the most consumer debt, the United States and the United Kingdom. Fighting the bust can only make matters worse
• All in all, it's not a pretty picture, especially with Bernanke at the helm.
Regards,
Mike Shedlock ~ "Mish""
by Mike Shedlock ~ "Mish"
Illinois, U.S.A.
Risk Comparison: China vs. U.S.
Jim Jubak at TheStreet.Com is writing "The New Risk From China: Deflation":
"Could China, the driver of global inflation in commodities such as crude oil and iron ore, be looking at domestic deflation in 2006?
"Deflation effectively took Japan out of the global economy for more than a decade, slowing global growth and increasing global economic volatility. Serious deflation in China has the potential to be a lot more dangerous. At its least damaging, it would flood the world's markets with even cheaper Chinese goods. At the worst, it could stall the Chinese economy, a major driver of global growth, and even send the country into one of its periods of instability.
"All that from a change in prices? You betcha.
"A Chinese economic think tank at the country's top economic agency, the National Development and Reform Commission, raised the red flag on deflation on Jan. 12. Since then, Chinese officials have repeatedly gone out of their way to pooh-pooh the danger. So much effort spent on denial, of course, means that it's a problem that the communist regime takes seriously…
"Deflation in the domestic Chinese economy would pressure companies to cut wages to keep up with falling prices. That, of course, would depress demand. Chinese consumers would have less money for purchases, which would depress prices further, which would lead to further wage cuts. Once a deflationary cycle like that gets started, it can be terribly hard to reverse. Just ask the Japanese, who are now emerging from years of deflation and no economic growth.
"China wouldn't survive a bout of deflation anywhere nearly as well as Japan. Japan is an amazingly cohesive society; China, even in the midst of an economic boom, is deeply fissured. Deflation would strike hardest at precisely those in the countryside who have been left behind in the current boom. The richest 10% of Chinese control 45% of the country's wealth, according to Chinese government figures, and the poorest 10% hold about 1%.
"About 250 million people in the country still earn less than $1 a day -- the official definition of poverty in China -- and 700 million live on less than $2 a day. Incomes among rural Chinese have actually declined in the last four years, the World Bank reports.
"This rural 70% of China's population has an average income of just $318 a year. If benefits like superior schools and medical care are included in the calculation, the average urban income is a huge seven times greater than the average rural income, the Chinese Academy of Social Sciences has calculated.
"Rising income inequality has led to a rising tide of protest. There were, officially, 87,000 public disturbances in 2005, up 6% from 74,000 disturbances in 2004, according to the Ministry of Public Security. (And you know that if that's the official number, the actual level of protest is much higher.)
"All this, mind you, while the economy is booming and deflation is just a story told to scare naughty economists at bedtime. How did China get into this mess?
"Start with an economy built around export growth and feed it with lots and lots of cheap money. And then ignore any signals that the rudimentary, somewhat free market might be sending you about overinvestment or overcapacity…
"China's GDP grew 9.9% last year, according to Chinese government figures. That's after 10.1% growth in 2004 and 10% in 2003.
"On the other hand, China has achieved this kind of growth only through massive overinvestment in the export sector. Even after a yearlong campaign to rein in investment in fixed assets -- you know, things like steel mills and aluminum foundries -- investments like these grew by 25.7% in 2005…
"The result has been massive overcapacity in fixed assets. Look at coke producers -- capacity of 242 million tons exceeded demand in 2005 by 100 million tons. Or steelmakers -- capacity exceeded demand by 120 million tons. Production capacity in China's auto industry now exceeds annual sales in China by 2 million vehicles. The government has identified 10 sectors -- including aluminum, autos, cement, coke, steel and textiles -- with capacity problems.
"Of course, this excess capacity hasn't ended plans to add even more capacity in these sectors. About 120 million tons of new coke capacity is under construction. New steel mills with capacity of 70 million tons are being built.
"Companies can raise money to build clearly unnecessary and unprofitable factories, because all too many Chinese banks continue to make loans on the basis of political connections, rather than market forecasts. Put a local entrepreneur and his local political patrons from the district government in the same room with a banker, and a loan pops out.
"How do you make a profit if you're doing business in an industry with 100 million tons of spare capacity? Export, export, export -- to any international market that will buy your product. And cut your prices until the buyers can't resist. At home, cut prices and cut them again.
"See how a system like this might produce both higher global prices for raw materials and lower prices for finished goods abroad and at home? You get global commodity inflation and domestic price deflation.
"China hasn't seen domestic deflation yet. But the trends are enough to worry Beijing's economists. Consumer price inflation fell to 1.8% in 2005, from 3.9% in 2004. (Like all other Chinese statistics, regard this one with extreme skepticism.) Prices, according to the National Development and Reform Commission, could start to fall in the second half of 2006…
"Watch instead the news on domestic protest. If the tide of protest keeps rising, if the repression gets more violent, you'll have a pretty good idea that the poorest of the Chinese are feeling the bite of deflation. The big danger is that the regime will feel so much pressure to restore order before the 2008 Beijing Olympics, meant as a national showcase, that it will resort to teaching the protesters some large-scale lesson like that imposed by the tanks of the Red Army in Tiananmen Square in 1989.
"Actually makes you root for inflation, doesn't it?"
Is China at Risk of Deflation?
Yes, for the very reasons Jim Jubak cites:
• Massive overcapacity in fixed assets
• Plans to add even more capacity in these sectors
• Too many Chinese banks continuing to make loans on the basis of political connections.
What Next?
In "China: What Next?" Andy Xie also mentions the overcapacity situation in China:
• "Overcapacity is causing investment slowdown: I estimate that fixed investment in industries that are experiencing overcapacity contributed 40-50% of GDP growth in 2005. Without other components of the GDP accelerating, China's economy should slow in 2006
• "Spending more on infrastructure won't reverse the trend: The infrastructure areas that can justify more investment account for 4% of total investment, I believe. Spending more there won't reverse the trend
• "Stimulating property again could lead to another wave of bad debts: Giving property a second wind is a popular proposal for stimulating the economy. Cutting mortgage rates could boost sentiment. However, it would mostly encourage more speculation. The industry is already swollen and highly speculative."
Is Deflation Bad?
The idea that deflation is necessarily bad is where Jubak's analysis falls apart. When he states, "Deflation would strike hardest at precisely those in the countryside who have been left behind in the current boom. The richest 10% of Chinese control 45% of the country's wealth, according to Chinese government figures, and the poorest 10% hold about 1%," for starters I fail to see how the percentage of wealth control is all that relevant in and of itself. I will get to the reason for that statement in just a bit, but first let's show without a doubt that the inequality problem is actually worse in the United States.
Wealth Inequality
According to Wealth Inequality: Data and Models, published by Federal Reserve Bank of Chicago on Aug. 17, 2005:
"U.S. wealth is highly concentrated and very unequally distributed…The top 1% hold one third, and the richest 5% hold more than half of total wealth. At the other extreme, a significant fraction of the population holds little or no wealth at all."
It seems the concentration of wealth is the United States is even greater than that in China.
Would deflation hit China's rural populations hardest? Let's first address the question at the very heart of the matter. Who does deflation hurt the worst? The answer is easy: those heavily in debt and those dependent on forever-rising property values. Having answered the critical question, let's see how China fares in deflation versus how America would fare.
Risk of Chinese Deflation
Is deflation going to hurt farmers left in the countryside in China? I think not. What debts do they have? Furthermore, they would welcome lower prices on goods they buy now. Down the road, they certainly would welcome lower property prices in the cities. I doubt demand or prices paid for their produce would drop much from here. People do have to eat. In practice, most of China's private citizens would benefit, as China's savings rate is enormous.
Deflation benefits savers.
Deflation would primarily hurt businesses sitting on malinvestments financed with debt. Let's also not forget China is a real growth story over the long haul. The problem for now is that China is too heavily dependent on overburdened and debt-ridden U.S. consumers. Lacking sufficient internal demand, there is simply nowhere for excess Chinese capacity to go. We discussed this idea in depth in "Thoughts on the Handover Fallacy."
Risk of U.S. Deflation
Now let's turn to the United States. Who would deflation hurt most? Unfortunately, the answer is the masses: those struggling from paycheck to paycheck, and especially those who are upside down on a house mortgage and heavily in debt on their SUV and credit cards. Deflation in America would help the cash-rich at the expense of those whose wealth is especially in assets like houses. Hopefully, it is readily apparent that the U.S. consumer, deep in debt with a negative savings rate, is actually at far greater "lifestyle risk," relatively speaking, than someone from China. There is also no going back to the rural farm option.
Thus, it's not wealth distribution per se that determines who is most at risk, but debt distribution and savings rates.
Free Market Comparison: China vs. U.S.
Jubak writes of a "rudimentary somewhat free market" in China. Heinz Blasnik, a friend of mine living in Austria, had this response when I e-mailed him the article:
"I think there is FAR MORE economic liberty in China than in the West. This is confirmed by just about anyone who has ever been there. There is, for instance, simply NO welfare state at all. When you go into business, you can expect to be able to do as you please without state interference, aside from the occasional corrupt local bureaucrat on the take (and those live dangerously).
"A good friend of mine is Chinese. He regularly travels between Austria and China and also confirms this view. His father was actually a big party apparatchik in Mao's time. While there's still a large and inefficient state sector (state-owned companies living on subsidies), all the rest is a free-for-all in wheeling and dealing that we only know from the history books."
Misconceptions About China
• The idea that capitalism is stronger in the United States than China is, for the most part, a myth, or at least highly overrated
• Wealth inequality is excessive in China. While that might be true, it is worse in the United States
• The idea that deflation would be bad for China is misguided. There would be winners and losers in China, but because of the high savings rate there versus the negative savings rate in America, because of serious overleverage to housing in America, and because of enormous consumer debt levels in America, a serious bout of deflation would be far worse for America than China.
Conclusions
• Deflation, whether here or elsewhere, would be bad for some people (those heavily in debt and/or those dependent on property and asset bubbles) but generally good for everyone else
• Stoking the fires of inflation to keep global reflation alive would only put off the overcapacity problems, while making matters worse down the road
• Malinvestments in the housing, auto, and retail sectors seem most at risk in the United States. In China, the property, aluminum, auto, cement, steel, and textiles sectors appear to be most at risk
• A global slowdown has begun, and the popping of various property bubbles is at the heart of it
• The downside risks are greatest in countries with the most consumer debt, the United States and the United Kingdom. Fighting the bust can only make matters worse
• All in all, it's not a pretty picture, especially with Bernanke at the helm.
Regards,
Mike Shedlock ~ "Mish""
Thursday, February 02, 2006
The "Commodity Super Cycle" - How long can it last?
by Gary Dorsch
Are we in the ninth inning of the "Commodity Super Cycle" that has lifted the Reuters Jefferies Commodity (CRB) price index 91% higher from four years ago to its highest level in 26 years? The Reuters Jefferies CRB index of 19 commodities reached a high of 350.38 on Jan 30th and is comprised of futures in live cattle, cotton, soybeans, sugar, frozen concentrated orange juice, wheat, cocoa, corn, gold, aluminum, nickel, unleaded gasoline, crude oil, natural gas, heating oil, coffee, silver, copper and lean hogs.
Barclays Capital said on January 5th that commodity investments might parlay another $40 billion this year up to $110 billion as pension funds and other money managers diversify from stocks and bonds. Big-money investment funds have boosted their stake in commodity indexed markets to around $70 billion in 2005, up from $45 billion by the end of 2004 and only around $15 billion at the end of 2003.
Pension funds, as well as small, retail investors are looking to commodities as a crucial part of diversification of any investment portfolio. Although schizophrenic commodity day traders could decide to turn massive paper profits into hard cash at a moment's notice, causing a 5% shakeout, the longer-term odds still favor a continuation of the "Commodity Super Cycle, into extra innings.
Central bankers point the finger of blame for soaring commodity prices on China's juggernaut economy, which has expanded at breakneck speed of 10% for each of the past three years, competing with rampant demand for basic resources from big importers like India, Japan, Germany, South Korea, and the United States. India's booming economy expanded 8% and Korea's by 5% last year. China bought about 22% of the global output of base metals in 2005, compared with 5% in the 1980's, and has doubled its crude oil imports from five years ago.
Central bankers stare at the explosive CRB rally from the sidelines with a sense of indifference or stone faced silence, though sharply higher commodity prices are telegraphing higher producer price inflation. Furthermore, China is under daily pressure from the Bush administration to revalue its yuan higher against the dollar, which in turn, would give Beijing even greater purchasing power abroad, and provide more support for a whole range of commodities from crude oil, iron ore, zinc, copper, platinum, uranium, soybeans, and ethanol.
But perhaps, the simplest answer to explain the long term bullish outlook for global commodities boils down to one simple equation. According to the latest population count by the United Nations, the world had 6.5 billion inhabitants in 2005, 380 million more than in 2000, or a gain of 76 million persons annually. By 2050, the world is expected to house 9.1 billion persons, assuming declining fertility rates. In other words, a world of finite raw materials, along with an increasing population base, translates into higher prices.
Until recently, the "Commodity Super Cycle" has been led by base metals such as copper, aluminum, and zinc, precious metals such as gold, silver, and platinum, and higher energy prices led by crude oil and natural gas. Recently however, commodity traders have doubled sugar prices to 24-year highs, and are moving into coffee and soybeans. Other raw materials such as iron ore rose 72% in 2005. Although China is a big exporter of steel, fears of a global supply glut could disappear rapidly, if global steel makers begin a pattern of consolidation, following in the footsteps of the gold mining industry over the past few years.
But how did the Reuter's CRB index reach record levels in the first place? Well consider the Chinese and Indian economies, which also account for one third of the world's population, and the super easy money policies pursued by the big-3 central banks, the Bank of Japan, the European Central Bank, and the Federal Reserve. Both ingredients, when mixed together, make an explosive cocktail that has lifted commodity indexes into the stratosphere.
And a trend in motion, will stay in motion, until some major outside force, knocks it off its course. So not withstanding inevitable profit-taking sessions, what major outside force is out there that could derail the CRB's upward trajectory?
Chinese demand for imports has soared by 330% from roughly $15.5 billion per month in early 2002 to a record $64.4 billion in December 2005. China is the world's fifth largest importer, and bought $632 billion worth of goods in 2005. The world's number-one miner BHP Billiton BHP.AX ran its mines and smelters at full speed in the fourth quarter to capture strong commodities prices, setting the stage for full-year profits to exceed $9 billion. Rio Tinto, RIO.AX, the world's second largest miner pushed its operations harder to double its 2005 profit to around $5 billion.
China's economy overtook France and the Great Britain to become the world's fourth largest last year, and will grow an estimated 9.4% this year. The European Union and Japan expect growth of 1.9% this year. Chinese Premier Wen said on December 1st that China needs to "maintain rapid and stable economic growth to raise the living standards" of the nation's 1.3 billion people, whose per capita income of $950 per year, ranks 129th in the world. Beijing is cutting taxes and raising salaries to encourage more spending on cars and household appliances.
Exports are a key driver behind the Chinese economic miracle, with China's currency exchange controls and trade surplus with the US topping $204 billion in 2005, a 25% increase on the previous year and nearly 30% of the total US deficit. The lynchpin of Chinese exports is the low yuan /dollar exchange rate pegged at 8.11 per dollar, undervalued by 30% to 40% on a trade weighted basis.
The People's Bank of China increased its M2 money supply by 18.3% last year, issuing more yuan to soak up foreign currency earned through foreign trade and direct investment into Chinese factories from abroad. Explosive money supply growth, in turn, boosted domestic retail sales by 13% last year, and industrial production was 16.6% higher in November from a year earlier. China's central bank raised its M2 money supply target to 17% in the third quarter from 15% earlier, to offset stronger demand for the yuan, and maintain the peg at 8.11 per US dollar .
China 's crude oil imports rose 4.4% in the first 11 months of 2005, and are expected to total 130 million tons of crude (2.5 million bpd) in 2005. Crude oil production from China's biggest oil field, Daqing, fell about 3% to 44.95 million tons (900,000 bpd) last year. China, the world's second-largest oil consumer, expects to secure foreign energy supplies with foreign deals for its economy, after it turned into a major oil importer and still suffers from severe power shortages.
China's oil giant Sinopec signed a $70 billion oil and natural gas agreement with Iran, to buy 250 million tons of liquefied natural gas over 30 years from Tehran and develop the giant Yadavaran field. Iran is also committed to export 150,000 barrels per day of crude oil to China for 25 years at market prices after commissioning of the field. Iran is China's biggest oil supplier, accounting for 14% of Chinese oil imports. In return, Tehran's Ayatollah is demanding a Chinese veto at the UN, to shield his secret nuclear weapons program from international sanctions.
India's Prime Minister Manmohan Singh, wants his country to achieve 10% economic growth in the next two to three years, to create more jobs and help lift a third of the country's 1.1 billion people out of poverty. Asia's fourth-biggest economy expanded 8% in the second and third quarters of 2005. Singh's government wants industrial production, which makes up a quarter of India's economy, to grow 10% annually to boost the incomes of Indians, one in three of whom live on less than $1 a day.
India's industrial production grew at an annualized 8.3% rate between April and November 2005, faster than major economies like US, UK, the Euro zone, Japan, Brazil, Indonesia and Russia. Only China and Argentina recorded faster industrial production rates of 16.6%, and 9.6% respectively. On the global sphere, US industrial production grew only 2.8%, and the UK, the Euro zone, and Indonesia, saw declines of 2.4%, 0.8%, and 3.4% respectively in their overall industrial production.
Indian economists have observed an 86% correlation between industrial production and exports. But the Indian export sector does not dominate growth in the Indian economy, such as in China and South Korea. The Indian economy is more about domestic consumer demand, which contributes nearly 70% to GDP, while exports contribute only 15% to India's GDP. India ranked 24th among global importers purchasing $113 billion of goods in 2005, or about a sixth Chinese demand.
Japan is also a major factor behind the rise in global commodity prices, with industrial production rising for a fifth month in December to a record, sustaining the nation's longest expansion in eight years. Japanese industrialists plan to spend 17.3% more on factories and production facilities in 2006 than last year. Overseas sales are also bolstering production and imports of raw materials from abroad. Japan imported $451 billion of goods in 2005, the seventh highest among global importers.
Japan 's exports rose 14.7% in November from a year earlier to 5.9 trillion yen ($50.2 billion), the second highest ever, on the heels of the yen's 19% devaluation against the dollar, and 17% drop against the Chinese yuan. Shipments to China rose 12.8% and those to the US climbed 8.9 percent. Exports were up for the 23rd consecutive month while imports rose for the 20th month in a row.
To meet strong demand from abroad, and an economic revival at home, Japanese imports of raw materials have soared 66% to 5.42 trillion yen per month from three years ago, and in turn, providing underlying support for global commodity prices. Japan paid 20% or more for nonferrous metals, crude oil and coal in 2005, which companies are expected to pass on to customers.
Japan 's wholesale price index was 1.9% higher in November from a year earlier, and has been in positive territory for two years, but the Japanese government claims that consumer prices are just emerging from a seven year bout of deflation. But the Japanese wholesale price index tracks major trends in the Reuters Commodity price index, which has risen 91% over the past four years, for an annualized gain of 23%, much higher than the Japanese wholesale price index of 1.9% inflation.
That would imply that Japanese manufacturers are getting squeezed by sharply higher raw material costs, and unable to pass costs along to intermediaries. Yet, large Japanese manufacturers claim their profits are expected to be 5.2% higher in 2005, and the Nikkei-225 stock index rose 40% last year to a 5-year high. If correct, then profit margins might have been inflated by a stronger dollar against the Japanese yen. That explains why the Japanese ministry of finance is jawboning or intervening in the currency markets, whenever the dollar has a rough day.
Global commodity prices bottomed out in late 2001, soon after the Bank of Japan lowered its overnight loan rate to zero percent, and adopted quantitative easing. The central bank prints about 1.2 trillion yen ($10 billion) per month to purchase Japanese government bonds, inflating the amount of yen circulating around global money markets. More Japanese yen yielding zero percent, chasing fewer natural resources in turn, leads to sharply higher global commodity prices.
The Japanese ruling elite are devaluing their way to prosperity, by flooding the Tokyo money markets with 32 trillion to 35 trillion yen above the liquidity requirements of local banks. The enormous supply of excess yen pushed Japan's 3-month deposit rate below zero percent for most of 2004. With borrowing costs at zero percent or less, Japanese and foreign hedge fund traders have found the cheapest source of capital to leverage speculative positions in global commodities.
And the Japanese ministry of Finance is not expected to grant permission to the Bank of Japan to begin mopping up some of the excess yen until the second half of 2006, at the very earliest. On January 9th, Japanese Finance Minister Sadakazu Tanigaki said, "There is a need for the BOJ to make a careful assessment of data. It should not rush things." The BOJ is certainly not rushing things. It has kept the overnight loan rate pegged at zero percent for five long years.
Kozo Yamamoto, the ruling LDP party chairman on monetary policy matters expressed outrage at the prospects of a BOJ policy change, saying quantitative easing must stay in place to eradicate deflation for good and to keep bond yields low to help the government trim debt servicing costs. "But if the BOJ were to ignore our view and force through the same mistake it made when it ended the zero rate policy in August 2000, ending up with a miserable outcome, we would then revise the BOJ law of independence," he warned.
The European Central Bank cannot ignore the Euro zone's loose monetary conditions and increased risks to price stability, said ECB chief economist Otmar Issing on December 19th. "Money growth has been high for quite some time and credit growth has continuously increased, supporting our assessment of the risks to price stability. Liquidity in the Euro area is more than ample. A central bank with the mandate to maintain price stability cannot ignore these signals," Issing added.
Yet for two and a half years, the ECB ignored a 50% surge in commodity prices, since lowering its repo rate to 2.00% in May 2003. The Euro M3 money supply growth rate was 7.6% higher in November from a year earlier, above the central bank's original mandate of 4.5% growth. Thus, t he ECB's quarter-point rate hike to 2.25% in December was too little, too late, to get in the way of the "Commodity Super Cycle," with the Reuters CRB rising another 10% in its aftermath.
Italian central banker Bini Smaghi spoke with a twisted tongue on the matter on January 25th. "If a central bank stops excess liquidity too late it has to raise rates much more strongly and that causes turbulence on the markets." Then, casting doubt about the ECB's resolve to combat commodity inflation, Smaghi said there are a range of risks to durable economic recovery in the Euro zone. "There are no clear signals about how strong growth really is. That's why we've got to be careful in this early stage of the recovery," Bini Smaghi said.
For the past three years, the ECB pursued a policy of "asset targeting", inflating its Euro M3 money supply to lift European stock markets into higher ground, and through the "wealth effect" lift the spirits of the frightened European consumer. The ECB is running into a barrage of resistance from top European finance officials to higher Euro interest rates, fearful of any action that could undermine the European stock markets. The ECB has much greater political independence than the BOJ.
Sending a clearer signal on January 23rd, ECB economist Issing argued, "Trichet made it very clear. The December rate hike was not the first in a series of steps. But we will always act on time. The risk to price stability has increased in the context of higher oil prices," Issing said, adding that Euro zone consumer inflation, which fell to 2.2% in December, was likely to rise again.
The ECB's Klaus Liebscher also expressed concern that the sustained high cost of oil would feed into wages and prices for other goods and services. "Without a doubt, there is still a large danger," he said, citing the German producer price index, which rose by 5.2% in December, its fastest pace for 23 years. Traders should always trust the hard dollars and cents flowing through the commodity markets for real time indications of future inflation, and not government statistics.
One has to question how the Japanese wholesale price index is only 1.9% higher from a year ago, or roughly 3.3% less than the German PPI, when the yen was 6% weaker than the Euro against the dollar last year. But in an age where ruling parties distort data to serve their own interests, it is hardly surprising that Japan's financial warlords present price indices and inflation data in a manner best suited to their immediate needs. There is simply is no limit to how far the Japanese government will go to keep its borrowing costs down and to protect the interest of its exporters.
Because most commodities are traded in US dollars, the Federal Reserve has a special role to play in the fight against commodity inflation. The Fed must protect the value of the US dollar in the foreign exchange market, with higher interest rates if necessary, to keep the Commodity Super Cycle in check. Yet the Greenspan Fed waited for the Reuters Commodity price index to rise by 45% above its 2001 low, before taking its first baby step to lift the fed funds rate by a quarter-point to 1.25%.
The Fed has moved in predictable quarter-point moves for the past eighteen months, and has signaled that 4.50% could be the peak in the tightening campaign. The Fed is targeting US home prices, which have flattened out in recent months, and should preclude further rate hikes in 2006. Still, the Fed's go-slow approach to combating inflation has left it far behind the "Commodity Super Cycle."
The Greenspan Fed produced a sizeable counter trend rally for the US dollar in 2005, pushing the greenback from 102-yen to as high as 121.50-yen, and knocking the Euro from as high as $1.3450 to a low of $1.1650. However, the Fed efforts to control commodity inflation were completely undermined by the super easy money policies of the Bank of Japan and the European Central Bank.
How would the new Fed chief Ben Bernanke react, if commodity prices were to continue to soar further into the stratosphere? Without the life support of higher interest rate expectations, the deficit ridden US dollar could come under renewed speculative attack in 2006. Especially, after China signaled a desire to diversify an expected build-up of $200 billion of foreign currency reserves away from the US dollar this year. A weaker dollar could give commodity prices extra support.
Fortunately for commodity bulls, Bernanke doesn't believe there is a link between a higher CRB index and higher producer price inflation. On February 5th, 2004, Bernanke said, "rising commodity prices a variable of growth rather than inflation." Then on May 24, 2005 Bernanke played down worries about higher energy and commodity prices. "Much of the recent price gains in energy and commodities reflect the rapid growth of the Chinese economy. Chinese authorities are now trying to slow that growth, and should help check the growth of commodity prices," he said.
Bernanke has also rejected opinions that the recent rise in oil prices is largely a symptom of super easy central bank monetary policies. "The consensus that emerges from this literature is that the relationship between commodity price movements and monetary policy is tenuous and unreliable at best. Moreover, recent experience doesn't support the notion that monetary policy had a substantial effect on the oil price rise," he said.
Then on October 25, 2005, the day after his nomination to lead the Federal Reserve, Bernanke was asked again about soaring commodity prices and their impact on the inflation outlook. "The evidence seems to be that it is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations. My anticipation is that's the way it's going to stay."
Most likely, Bernanke would continue to ignore a surge in commodity prices, but keep a close eye on US home prices. Any sign of a significant downturn in US home prices, could quickly prompt the new Fed chief to lower the fed funds rate. Already, home re-sales in the United States fell 5.7% in December to the lowest level since March 2004, after five years of gains that shattered construction and sales records and sent prices up more than 55% nationwide. The national median sales price in December was $211,000, and down from a record high of $222,000.
The Greenspan Fed was an "Asset Targeter" and inflated US home prices over the past few years to offset huge losses in the Nasdaq and S&P 500 stock indexes. The Fed borrowed this strategy from the Bank of England, which pioneered home price targeting in 2001. By moving in baby step quarter-point rate hikes, the Fed was careful to avoid a meaningful downturn in the housing markets, until signs of froth in home prices were sprouting in over 100 major US cities in late 2005.
Any sign of potential weakness in the DJ home construction index towards the horizontal support at the 800-level, could be met by aggressive half-point rating cutting by the Bernanke Fed to head off an implosion of consumer wealth and confidence. A significant decline below the 800 level could signal a head and shoulders top pattern to technicians, projecting a decline to the 550-level. Fortunately, head and shoulder pattern rarely work anymore, and usually just set bear traps. Sharp rate cuts by the Fed might bring Wall Street investment bankers to the rescue of the housing sector.
So what could derail the "Commodity Super Cycle" in 2006? Schizophrenic speculators could be tempted to lock in profits at a moment's notice. But big time players like China, Japan, and India could provide a safety net for falling commodity markets, gratefully locking in lower prices for raw materials. Beijing is on course to reach $1 trillion of foreign currency reserves by years ahead. Base metal and precious metal dealers could be loathe to offer big discounts to cash rich Beijing.
China is still holding a massive short position in copper futures, estimated at below 200,000 tons because of positions amassed by trader Liu Qibing. Yet there are only 140,000 tons of copper in publicly reported stockpiles worldwide, equal to about three days of global usage, and stored in warehouses monitored by the London Metals Exchange and commodity exchanges in New York and Shanghai.
The Bank of Japan is aiming for negative interest rates by forcing the "core" inflation rate to rise above its zero percent overnight loan rate, before moving to tighten its monetary policy. Negative interest rates would actually produce an easier money policy in Japan in the short term, and possibly create a major bubble in the Nikkei-225 stock index. The ECB's baby step rate hike campaign would probably fizzle out near 2.75%, hardly enough to scare anyone. And the Fed's Bernanke is on guard against falling home prices.
Crude oil is hovering near record highs, fearful that Iran's Ayatollah might unleash the "Oil Weapon" in 2006, squeezing crude oil to $80 per barrel, if Europe and the US muster the nerve to impose economic sanctions on the Islamic regime. A battle in the Strait of Hormuz could disrupt oil supplies and the supply of commodities worldwide. But high-flying Asian and European stock markets are betting the Ayatollah will flinch at the eleventh hour to avoid a military showdown with the US and NATO, and wipe out a $10 per barrel "War Premium" for crude oil.
Weighing all the bearish and bullish arguments however, it appears likely that the "Commodity Super Cycle" is bound to go deeper into extra innings and reach new frontiers in un-chartered territory.
This article may be re-printed for use in other publications with links to www.sirchartsalot.com . If you are interested in reading similar articles on gold, foreign currencies, foreign stock and bond markets, crude oil, and natural resource stocks, and underlying ETF's, for as little as $75 per year for 36 issues, click on this link, Free Trial Newsletter. This offer will be honored until February 15th.
CFN BLOG POST RESPONSES:
Ross:
Compelling article.
I just read another piece delivered to me by the World Watch Institute: China and its relentless syphoning of world resources. Makes one shiver and wonder.
Over on this part of the world financial "analysts" fret over whether China will grow 8.5% or 9% or whatever. Or if Indian internal consumption rate will remain the mainstay of growth or if they will go down the China road and start exporting like crazy. And yada, yada, yada.
Very interesting. It's fascinating to see all these very serious, very smart, and very rich people gravely discuss these heady matters.
Did I say it's also very irrelevant? We are picking the Earth clean. Stripping it to the bone. Like ants on a piece of carrion rotting by the road. Like locusts moving in a mighty, ravenous cloud, desolating the landscape as it roves hither and yon until it eats itself out of existence.
Hagar the Horrible once learned from the wizened guru at the top of the mountain that "Life is a one trip salad bar". Our species is about to discover this in a most spectacular fashion. Shit, guys. Think about it. Unlike the aliens in "Independence Day", we can't up and look for some other planet to suck dry when we're done with this one. This is the one we've been given.... End of the line when our orgy is done. Bon frigging appetit!
The undiluted malice of the avaricious old men running this show defies description. Their powerful organizations even now look to despoiliate yet another forest, strip-mine yet another pristine hill, pump dry yet another irreplaceable aquifer's fossil water to add $0.04 to their stock earnings. The sicknesses of pride, gluttony, and wrath infect their every actions.
3 out of 7 of the old capital sins. Certainly hell hath not a place hot enough, cruel enough, for the fiends.
Oy vey is mir!
Posted by: jorge | February 02, 2006 at 02:31 AM
Ross-
Great Safehaven piece. My favorite of the Bernanke quotes is, of course, this one:
"The evidence seems to be that [price inflation] is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations. My anticipation is that's the way it's going to stay."
Gee, you think so, Ben? You "anticipate" that the "broader inflation measures," the ones that don't include "energy" or "some raw materials," such as . . . crude oil or precious metals might "stay" somewhat stable?
Sheeeeeet, this is the world we live in. Orwellian spin at every freakin level. There's just no escape from the dual stink of shenanigans and lies.
by Gary Dorsch
Are we in the ninth inning of the "Commodity Super Cycle" that has lifted the Reuters Jefferies Commodity (CRB) price index 91% higher from four years ago to its highest level in 26 years? The Reuters Jefferies CRB index of 19 commodities reached a high of 350.38 on Jan 30th and is comprised of futures in live cattle, cotton, soybeans, sugar, frozen concentrated orange juice, wheat, cocoa, corn, gold, aluminum, nickel, unleaded gasoline, crude oil, natural gas, heating oil, coffee, silver, copper and lean hogs.
Barclays Capital said on January 5th that commodity investments might parlay another $40 billion this year up to $110 billion as pension funds and other money managers diversify from stocks and bonds. Big-money investment funds have boosted their stake in commodity indexed markets to around $70 billion in 2005, up from $45 billion by the end of 2004 and only around $15 billion at the end of 2003.
Pension funds, as well as small, retail investors are looking to commodities as a crucial part of diversification of any investment portfolio. Although schizophrenic commodity day traders could decide to turn massive paper profits into hard cash at a moment's notice, causing a 5% shakeout, the longer-term odds still favor a continuation of the "Commodity Super Cycle, into extra innings.
Central bankers point the finger of blame for soaring commodity prices on China's juggernaut economy, which has expanded at breakneck speed of 10% for each of the past three years, competing with rampant demand for basic resources from big importers like India, Japan, Germany, South Korea, and the United States. India's booming economy expanded 8% and Korea's by 5% last year. China bought about 22% of the global output of base metals in 2005, compared with 5% in the 1980's, and has doubled its crude oil imports from five years ago.
Central bankers stare at the explosive CRB rally from the sidelines with a sense of indifference or stone faced silence, though sharply higher commodity prices are telegraphing higher producer price inflation. Furthermore, China is under daily pressure from the Bush administration to revalue its yuan higher against the dollar, which in turn, would give Beijing even greater purchasing power abroad, and provide more support for a whole range of commodities from crude oil, iron ore, zinc, copper, platinum, uranium, soybeans, and ethanol.
But perhaps, the simplest answer to explain the long term bullish outlook for global commodities boils down to one simple equation. According to the latest population count by the United Nations, the world had 6.5 billion inhabitants in 2005, 380 million more than in 2000, or a gain of 76 million persons annually. By 2050, the world is expected to house 9.1 billion persons, assuming declining fertility rates. In other words, a world of finite raw materials, along with an increasing population base, translates into higher prices.
Until recently, the "Commodity Super Cycle" has been led by base metals such as copper, aluminum, and zinc, precious metals such as gold, silver, and platinum, and higher energy prices led by crude oil and natural gas. Recently however, commodity traders have doubled sugar prices to 24-year highs, and are moving into coffee and soybeans. Other raw materials such as iron ore rose 72% in 2005. Although China is a big exporter of steel, fears of a global supply glut could disappear rapidly, if global steel makers begin a pattern of consolidation, following in the footsteps of the gold mining industry over the past few years.
But how did the Reuter's CRB index reach record levels in the first place? Well consider the Chinese and Indian economies, which also account for one third of the world's population, and the super easy money policies pursued by the big-3 central banks, the Bank of Japan, the European Central Bank, and the Federal Reserve. Both ingredients, when mixed together, make an explosive cocktail that has lifted commodity indexes into the stratosphere.
And a trend in motion, will stay in motion, until some major outside force, knocks it off its course. So not withstanding inevitable profit-taking sessions, what major outside force is out there that could derail the CRB's upward trajectory?
Chinese demand for imports has soared by 330% from roughly $15.5 billion per month in early 2002 to a record $64.4 billion in December 2005. China is the world's fifth largest importer, and bought $632 billion worth of goods in 2005. The world's number-one miner BHP Billiton BHP.AX ran its mines and smelters at full speed in the fourth quarter to capture strong commodities prices, setting the stage for full-year profits to exceed $9 billion. Rio Tinto, RIO.AX, the world's second largest miner pushed its operations harder to double its 2005 profit to around $5 billion.
China's economy overtook France and the Great Britain to become the world's fourth largest last year, and will grow an estimated 9.4% this year. The European Union and Japan expect growth of 1.9% this year. Chinese Premier Wen said on December 1st that China needs to "maintain rapid and stable economic growth to raise the living standards" of the nation's 1.3 billion people, whose per capita income of $950 per year, ranks 129th in the world. Beijing is cutting taxes and raising salaries to encourage more spending on cars and household appliances.
Exports are a key driver behind the Chinese economic miracle, with China's currency exchange controls and trade surplus with the US topping $204 billion in 2005, a 25% increase on the previous year and nearly 30% of the total US deficit. The lynchpin of Chinese exports is the low yuan /dollar exchange rate pegged at 8.11 per dollar, undervalued by 30% to 40% on a trade weighted basis.
The People's Bank of China increased its M2 money supply by 18.3% last year, issuing more yuan to soak up foreign currency earned through foreign trade and direct investment into Chinese factories from abroad. Explosive money supply growth, in turn, boosted domestic retail sales by 13% last year, and industrial production was 16.6% higher in November from a year earlier. China's central bank raised its M2 money supply target to 17% in the third quarter from 15% earlier, to offset stronger demand for the yuan, and maintain the peg at 8.11 per US dollar .
China 's crude oil imports rose 4.4% in the first 11 months of 2005, and are expected to total 130 million tons of crude (2.5 million bpd) in 2005. Crude oil production from China's biggest oil field, Daqing, fell about 3% to 44.95 million tons (900,000 bpd) last year. China, the world's second-largest oil consumer, expects to secure foreign energy supplies with foreign deals for its economy, after it turned into a major oil importer and still suffers from severe power shortages.
China's oil giant Sinopec signed a $70 billion oil and natural gas agreement with Iran, to buy 250 million tons of liquefied natural gas over 30 years from Tehran and develop the giant Yadavaran field. Iran is also committed to export 150,000 barrels per day of crude oil to China for 25 years at market prices after commissioning of the field. Iran is China's biggest oil supplier, accounting for 14% of Chinese oil imports. In return, Tehran's Ayatollah is demanding a Chinese veto at the UN, to shield his secret nuclear weapons program from international sanctions.
India's Prime Minister Manmohan Singh, wants his country to achieve 10% economic growth in the next two to three years, to create more jobs and help lift a third of the country's 1.1 billion people out of poverty. Asia's fourth-biggest economy expanded 8% in the second and third quarters of 2005. Singh's government wants industrial production, which makes up a quarter of India's economy, to grow 10% annually to boost the incomes of Indians, one in three of whom live on less than $1 a day.
India's industrial production grew at an annualized 8.3% rate between April and November 2005, faster than major economies like US, UK, the Euro zone, Japan, Brazil, Indonesia and Russia. Only China and Argentina recorded faster industrial production rates of 16.6%, and 9.6% respectively. On the global sphere, US industrial production grew only 2.8%, and the UK, the Euro zone, and Indonesia, saw declines of 2.4%, 0.8%, and 3.4% respectively in their overall industrial production.
Indian economists have observed an 86% correlation between industrial production and exports. But the Indian export sector does not dominate growth in the Indian economy, such as in China and South Korea. The Indian economy is more about domestic consumer demand, which contributes nearly 70% to GDP, while exports contribute only 15% to India's GDP. India ranked 24th among global importers purchasing $113 billion of goods in 2005, or about a sixth Chinese demand.
Japan is also a major factor behind the rise in global commodity prices, with industrial production rising for a fifth month in December to a record, sustaining the nation's longest expansion in eight years. Japanese industrialists plan to spend 17.3% more on factories and production facilities in 2006 than last year. Overseas sales are also bolstering production and imports of raw materials from abroad. Japan imported $451 billion of goods in 2005, the seventh highest among global importers.
Japan 's exports rose 14.7% in November from a year earlier to 5.9 trillion yen ($50.2 billion), the second highest ever, on the heels of the yen's 19% devaluation against the dollar, and 17% drop against the Chinese yuan. Shipments to China rose 12.8% and those to the US climbed 8.9 percent. Exports were up for the 23rd consecutive month while imports rose for the 20th month in a row.
To meet strong demand from abroad, and an economic revival at home, Japanese imports of raw materials have soared 66% to 5.42 trillion yen per month from three years ago, and in turn, providing underlying support for global commodity prices. Japan paid 20% or more for nonferrous metals, crude oil and coal in 2005, which companies are expected to pass on to customers.
Japan 's wholesale price index was 1.9% higher in November from a year earlier, and has been in positive territory for two years, but the Japanese government claims that consumer prices are just emerging from a seven year bout of deflation. But the Japanese wholesale price index tracks major trends in the Reuters Commodity price index, which has risen 91% over the past four years, for an annualized gain of 23%, much higher than the Japanese wholesale price index of 1.9% inflation.
That would imply that Japanese manufacturers are getting squeezed by sharply higher raw material costs, and unable to pass costs along to intermediaries. Yet, large Japanese manufacturers claim their profits are expected to be 5.2% higher in 2005, and the Nikkei-225 stock index rose 40% last year to a 5-year high. If correct, then profit margins might have been inflated by a stronger dollar against the Japanese yen. That explains why the Japanese ministry of finance is jawboning or intervening in the currency markets, whenever the dollar has a rough day.
Global commodity prices bottomed out in late 2001, soon after the Bank of Japan lowered its overnight loan rate to zero percent, and adopted quantitative easing. The central bank prints about 1.2 trillion yen ($10 billion) per month to purchase Japanese government bonds, inflating the amount of yen circulating around global money markets. More Japanese yen yielding zero percent, chasing fewer natural resources in turn, leads to sharply higher global commodity prices.
The Japanese ruling elite are devaluing their way to prosperity, by flooding the Tokyo money markets with 32 trillion to 35 trillion yen above the liquidity requirements of local banks. The enormous supply of excess yen pushed Japan's 3-month deposit rate below zero percent for most of 2004. With borrowing costs at zero percent or less, Japanese and foreign hedge fund traders have found the cheapest source of capital to leverage speculative positions in global commodities.
And the Japanese ministry of Finance is not expected to grant permission to the Bank of Japan to begin mopping up some of the excess yen until the second half of 2006, at the very earliest. On January 9th, Japanese Finance Minister Sadakazu Tanigaki said, "There is a need for the BOJ to make a careful assessment of data. It should not rush things." The BOJ is certainly not rushing things. It has kept the overnight loan rate pegged at zero percent for five long years.
Kozo Yamamoto, the ruling LDP party chairman on monetary policy matters expressed outrage at the prospects of a BOJ policy change, saying quantitative easing must stay in place to eradicate deflation for good and to keep bond yields low to help the government trim debt servicing costs. "But if the BOJ were to ignore our view and force through the same mistake it made when it ended the zero rate policy in August 2000, ending up with a miserable outcome, we would then revise the BOJ law of independence," he warned.
The European Central Bank cannot ignore the Euro zone's loose monetary conditions and increased risks to price stability, said ECB chief economist Otmar Issing on December 19th. "Money growth has been high for quite some time and credit growth has continuously increased, supporting our assessment of the risks to price stability. Liquidity in the Euro area is more than ample. A central bank with the mandate to maintain price stability cannot ignore these signals," Issing added.
Yet for two and a half years, the ECB ignored a 50% surge in commodity prices, since lowering its repo rate to 2.00% in May 2003. The Euro M3 money supply growth rate was 7.6% higher in November from a year earlier, above the central bank's original mandate of 4.5% growth. Thus, t he ECB's quarter-point rate hike to 2.25% in December was too little, too late, to get in the way of the "Commodity Super Cycle," with the Reuters CRB rising another 10% in its aftermath.
Italian central banker Bini Smaghi spoke with a twisted tongue on the matter on January 25th. "If a central bank stops excess liquidity too late it has to raise rates much more strongly and that causes turbulence on the markets." Then, casting doubt about the ECB's resolve to combat commodity inflation, Smaghi said there are a range of risks to durable economic recovery in the Euro zone. "There are no clear signals about how strong growth really is. That's why we've got to be careful in this early stage of the recovery," Bini Smaghi said.
For the past three years, the ECB pursued a policy of "asset targeting", inflating its Euro M3 money supply to lift European stock markets into higher ground, and through the "wealth effect" lift the spirits of the frightened European consumer. The ECB is running into a barrage of resistance from top European finance officials to higher Euro interest rates, fearful of any action that could undermine the European stock markets. The ECB has much greater political independence than the BOJ.
Sending a clearer signal on January 23rd, ECB economist Issing argued, "Trichet made it very clear. The December rate hike was not the first in a series of steps. But we will always act on time. The risk to price stability has increased in the context of higher oil prices," Issing said, adding that Euro zone consumer inflation, which fell to 2.2% in December, was likely to rise again.
The ECB's Klaus Liebscher also expressed concern that the sustained high cost of oil would feed into wages and prices for other goods and services. "Without a doubt, there is still a large danger," he said, citing the German producer price index, which rose by 5.2% in December, its fastest pace for 23 years. Traders should always trust the hard dollars and cents flowing through the commodity markets for real time indications of future inflation, and not government statistics.
One has to question how the Japanese wholesale price index is only 1.9% higher from a year ago, or roughly 3.3% less than the German PPI, when the yen was 6% weaker than the Euro against the dollar last year. But in an age where ruling parties distort data to serve their own interests, it is hardly surprising that Japan's financial warlords present price indices and inflation data in a manner best suited to their immediate needs. There is simply is no limit to how far the Japanese government will go to keep its borrowing costs down and to protect the interest of its exporters.
Because most commodities are traded in US dollars, the Federal Reserve has a special role to play in the fight against commodity inflation. The Fed must protect the value of the US dollar in the foreign exchange market, with higher interest rates if necessary, to keep the Commodity Super Cycle in check. Yet the Greenspan Fed waited for the Reuters Commodity price index to rise by 45% above its 2001 low, before taking its first baby step to lift the fed funds rate by a quarter-point to 1.25%.
The Fed has moved in predictable quarter-point moves for the past eighteen months, and has signaled that 4.50% could be the peak in the tightening campaign. The Fed is targeting US home prices, which have flattened out in recent months, and should preclude further rate hikes in 2006. Still, the Fed's go-slow approach to combating inflation has left it far behind the "Commodity Super Cycle."
The Greenspan Fed produced a sizeable counter trend rally for the US dollar in 2005, pushing the greenback from 102-yen to as high as 121.50-yen, and knocking the Euro from as high as $1.3450 to a low of $1.1650. However, the Fed efforts to control commodity inflation were completely undermined by the super easy money policies of the Bank of Japan and the European Central Bank.
How would the new Fed chief Ben Bernanke react, if commodity prices were to continue to soar further into the stratosphere? Without the life support of higher interest rate expectations, the deficit ridden US dollar could come under renewed speculative attack in 2006. Especially, after China signaled a desire to diversify an expected build-up of $200 billion of foreign currency reserves away from the US dollar this year. A weaker dollar could give commodity prices extra support.
Fortunately for commodity bulls, Bernanke doesn't believe there is a link between a higher CRB index and higher producer price inflation. On February 5th, 2004, Bernanke said, "rising commodity prices a variable of growth rather than inflation." Then on May 24, 2005 Bernanke played down worries about higher energy and commodity prices. "Much of the recent price gains in energy and commodities reflect the rapid growth of the Chinese economy. Chinese authorities are now trying to slow that growth, and should help check the growth of commodity prices," he said.
Bernanke has also rejected opinions that the recent rise in oil prices is largely a symptom of super easy central bank monetary policies. "The consensus that emerges from this literature is that the relationship between commodity price movements and monetary policy is tenuous and unreliable at best. Moreover, recent experience doesn't support the notion that monetary policy had a substantial effect on the oil price rise," he said.
Then on October 25, 2005, the day after his nomination to lead the Federal Reserve, Bernanke was asked again about soaring commodity prices and their impact on the inflation outlook. "The evidence seems to be that it is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations. My anticipation is that's the way it's going to stay."
Most likely, Bernanke would continue to ignore a surge in commodity prices, but keep a close eye on US home prices. Any sign of a significant downturn in US home prices, could quickly prompt the new Fed chief to lower the fed funds rate. Already, home re-sales in the United States fell 5.7% in December to the lowest level since March 2004, after five years of gains that shattered construction and sales records and sent prices up more than 55% nationwide. The national median sales price in December was $211,000, and down from a record high of $222,000.
The Greenspan Fed was an "Asset Targeter" and inflated US home prices over the past few years to offset huge losses in the Nasdaq and S&P 500 stock indexes. The Fed borrowed this strategy from the Bank of England, which pioneered home price targeting in 2001. By moving in baby step quarter-point rate hikes, the Fed was careful to avoid a meaningful downturn in the housing markets, until signs of froth in home prices were sprouting in over 100 major US cities in late 2005.
Any sign of potential weakness in the DJ home construction index towards the horizontal support at the 800-level, could be met by aggressive half-point rating cutting by the Bernanke Fed to head off an implosion of consumer wealth and confidence. A significant decline below the 800 level could signal a head and shoulders top pattern to technicians, projecting a decline to the 550-level. Fortunately, head and shoulder pattern rarely work anymore, and usually just set bear traps. Sharp rate cuts by the Fed might bring Wall Street investment bankers to the rescue of the housing sector.
So what could derail the "Commodity Super Cycle" in 2006? Schizophrenic speculators could be tempted to lock in profits at a moment's notice. But big time players like China, Japan, and India could provide a safety net for falling commodity markets, gratefully locking in lower prices for raw materials. Beijing is on course to reach $1 trillion of foreign currency reserves by years ahead. Base metal and precious metal dealers could be loathe to offer big discounts to cash rich Beijing.
China is still holding a massive short position in copper futures, estimated at below 200,000 tons because of positions amassed by trader Liu Qibing. Yet there are only 140,000 tons of copper in publicly reported stockpiles worldwide, equal to about three days of global usage, and stored in warehouses monitored by the London Metals Exchange and commodity exchanges in New York and Shanghai.
The Bank of Japan is aiming for negative interest rates by forcing the "core" inflation rate to rise above its zero percent overnight loan rate, before moving to tighten its monetary policy. Negative interest rates would actually produce an easier money policy in Japan in the short term, and possibly create a major bubble in the Nikkei-225 stock index. The ECB's baby step rate hike campaign would probably fizzle out near 2.75%, hardly enough to scare anyone. And the Fed's Bernanke is on guard against falling home prices.
Crude oil is hovering near record highs, fearful that Iran's Ayatollah might unleash the "Oil Weapon" in 2006, squeezing crude oil to $80 per barrel, if Europe and the US muster the nerve to impose economic sanctions on the Islamic regime. A battle in the Strait of Hormuz could disrupt oil supplies and the supply of commodities worldwide. But high-flying Asian and European stock markets are betting the Ayatollah will flinch at the eleventh hour to avoid a military showdown with the US and NATO, and wipe out a $10 per barrel "War Premium" for crude oil.
Weighing all the bearish and bullish arguments however, it appears likely that the "Commodity Super Cycle" is bound to go deeper into extra innings and reach new frontiers in un-chartered territory.
This article may be re-printed for use in other publications with links to www.sirchartsalot.com . If you are interested in reading similar articles on gold, foreign currencies, foreign stock and bond markets, crude oil, and natural resource stocks, and underlying ETF's, for as little as $75 per year for 36 issues, click on this link, Free Trial Newsletter. This offer will be honored until February 15th.
CFN BLOG POST RESPONSES:
Ross:
Compelling article.
I just read another piece delivered to me by the World Watch Institute: China and its relentless syphoning of world resources. Makes one shiver and wonder.
Over on this part of the world financial "analysts" fret over whether China will grow 8.5% or 9% or whatever. Or if Indian internal consumption rate will remain the mainstay of growth or if they will go down the China road and start exporting like crazy. And yada, yada, yada.
Very interesting. It's fascinating to see all these very serious, very smart, and very rich people gravely discuss these heady matters.
Did I say it's also very irrelevant? We are picking the Earth clean. Stripping it to the bone. Like ants on a piece of carrion rotting by the road. Like locusts moving in a mighty, ravenous cloud, desolating the landscape as it roves hither and yon until it eats itself out of existence.
Hagar the Horrible once learned from the wizened guru at the top of the mountain that "Life is a one trip salad bar". Our species is about to discover this in a most spectacular fashion. Shit, guys. Think about it. Unlike the aliens in "Independence Day", we can't up and look for some other planet to suck dry when we're done with this one. This is the one we've been given.... End of the line when our orgy is done. Bon frigging appetit!
The undiluted malice of the avaricious old men running this show defies description. Their powerful organizations even now look to despoiliate yet another forest, strip-mine yet another pristine hill, pump dry yet another irreplaceable aquifer's fossil water to add $0.04 to their stock earnings. The sicknesses of pride, gluttony, and wrath infect their every actions.
3 out of 7 of the old capital sins. Certainly hell hath not a place hot enough, cruel enough, for the fiends.
Oy vey is mir!
Posted by: jorge
Ross-
Great Safehaven piece. My favorite of the Bernanke quotes is, of course, this one:
"The evidence seems to be that [price inflation] is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations. My anticipation is that's the way it's going to stay."
Gee, you think so, Ben? You "anticipate" that the "broader inflation measures," the ones that don't include "energy" or "some raw materials," such as . . . crude oil or precious metals might "stay" somewhat stable?
Sheeeeeet, this is the world we live in. Orwellian spin at every freakin level. There's just no escape from the dual stink of shenanigans and lies.
The State of the Union
By William Rivers Pitt
t r u t h o u t | Perspective
Tuesday 31 January 2006
i knew that i was dying.
something in me said, go ahead, die, sleep, become
them, accept.
then something else in me said, no, save the tiniest
bit.
it needn't be much, just a spark.
a spark can set a whole forest on
fire.
just a spark.
save it.
- Charles Bukowski
"He shall from time to time," reads the Constitution, "give to the Congress information of the state of the union, and recommend to their consideration such measures as he shall judge necessary and expedient." And so it shall be. George W. Bush will be speaking tonight from the podium in the House of Representatives. Before him will be arrayed Senators, Representatives, generals and judges. The balconies will be filled with observers, luminaries, reporters and a few so-called "special guests" whose presence will be used to reinforce some argument or another.
It shall be quite a thing to see, a show worth watching if only to observe exactly how many lies, distortions, threats, taunts and smirks can be crammed into a single speech. This will be Mr. Bush speaking, after all, and the truth is not in him. It will be in every pertinent sense a mere commercial, a television advertisement from a failing company, a whitewashing of ugly truths by a staggering CEO whose sole desire is to keep the stockholders in line for another quarter.
In the interests of truth, the actual state of this union deserves to be displayed for all to see. This is the deal. This is how it is.
The Real Economy
Since 2000, the number of Americans living in poverty has risen to nearly 37 million. More than 13 million of these are children. More than one in four American families with children make less than $30,000 a year. Look within that number and you will find 46% of African American families with children and 44% of Hispanic families with children fall below this mark. Average annual income for Americans fell once again in 2005. 46 million Americans live without health insurance.
The response to this? Vice President Cheney, three days before Christmas, cast the tie-breaking vote on a spending reduction bill that will fall most heavily on the poor, the infirm and the elderly. Funding for health care, child support, and education subsidies for low-income families has been gutted. Medicaid benefits for the poor were cut by $7 billion, and Medicare programs for the elderly were cut by $6.4 billion. Federal student-loan programs were cut by $12.7 billion.
On the very same day, the Senate passed legislation that drastically cut funding for the departments of Labor, Health and Human Services, and Education. The Head Start program was hit especially hard: the cuts here eliminate some 25,000 slots for low-income children. All in all, these spending reductions are expected to save $40 billion.
Meanwhile, recently-passed tax cuts ravage the budget far more deeply than these drastic budget cuts. Two tax cuts in particular that went into effect on New Year's Day will cost $27 billion, more than half of what the spending reductions are supposed to save. These cuts will cost more than $150 billion over the next ten years. 97% of the money from these cuts will go to households making more than $200,000 a year. Households with incomes under $100,000 will get 0.1% of these cuts.
If all of Mr. Bush's tax cuts are stopped or allowed to expire, $750 billion will be added to the federal budget. That is more than enough to pay for the programs that have been eviscerated. It won't happen, not with the priorities of this administration, but that is the simple math of the matter.
New Orleans Drowned in a Bathtub
The first weeks of September brought to all Americans a devastating tragedy. The city of New Orleans was all but obliterated by Hurricane Katrina when levees meant to hold back the waters failed. The failure of these levees came, in no small part, because of unprecedented budget cuts for the Army Corps of Engineers, which was tasked to keep the levees viable.
The tragedy was compounded by the utterly incompetent management of the Federal Emergency Management Agency and its head, Michael Brown, whose experience with disaster management came while he was serving as an attorney for owners of Arabian horses. In the weeks to follow, lavish promises were made by Mr. Bush. "We will do what it takes, we will stay as long as it takes, to help citizens rebuild their communities and their lives," he said on September 15th.
Those promises have been broken. We have gone from oaths to revive this cherished city to this: "I want to remind people in that part of the world, $85 billion is a lot," said Bush on January 26th. Hundreds of thousands of Americans remain displaced, many holding on by the skin of their teeth in cramped trailers. Thirty million cubic yards of debris remain uncollected - the Washington Post estimated over the weekend that this was "enough to build a five-sided column more than 50 stories tall over the Pentagon." There is not even a plan in place to begin to attack the problem. The Bush administration has left New Orleans to rot, and the next hurricane season is four months away.
Anti-tax crusader Grover Norquist once famously stated that he wanted to shrink the federal government to the size where it could be drowned in a bathtub. As evidenced by the budget cuts and tax giveaways described above, many within this government feel as Norquist does. Thanks to their actions, to the cuts in the Army Corps of Engineers budget, to the nomination of useless cronies like Brown to vital positions of civil defense, to a war in Iraq that has bled the budget further and left Louisiana without sufficient National Guard troops to help the population, it is New Orleans that has been drowned in Norquist's bathtub. A major American city has been shattered, and nothing is done about it.
To add insult to injury, the Bush administration utterly refuses to answer any questions on the matter. Senator Joseph Lieberman of Connecticut, perhaps the most widely-known Democratic defender of Mr. Bush, is the ranking minority member on the Senate Homeland Security and Governmental Affairs Committee. Even Mr. Lieberman is flabbergasted by the stonewalling of the White House.
"My staff believes that DHS (the Department of Homeland Security) has engaged in a conscious strategy of slow-walking our investigation in the hope that we would run out of time to follow the investigation's natural progression to where it leads," Lieberman said last week. "At this point, I cannot disagree. There's been no assertion of executive privilege, just a refusal to answer. I have been told by my staff that almost every question our staff has asked federal agency witnesses regarding conversations with or involvement of the White House has been met with a response that they could not answer on direction of the White House."
Mark Folse, a New Orleans native, operates a blog called "Wet Bank Guide." On Monday, Mr. Folse posted a message for Mr. Bush. "I've never lost the deepest allegiance I've ever held: to my city," wrote Folse. "We have always known we were a people different and unique, as divided as we may seem. That sense of identity as a New Orleanian is the powerful bond that draws me on. It is the deep love of country that drives me - of my country, New Orleans and southern Louisiana. It is the irrational emotional attachment to my piece of America that leads men and women to go willingly up Bunker Hill, to follow General Pickett, to volunteer for Iraq."
"A life of assured privilege has protected you from having to take these sorts of risks," continued Folse, "to find the strength to get up and go into the maw of uncertainty, to risk and gamble your own and not other peoples' lives or money. You can pledge allegiance or sing the anthem or give a stirring speech as well as any, but you know you have no allegiance except self-interest."
"If nothing moves you except your own self-interest," concluded Folse, "then consider this. There are hundreds of thousands of us, scattered throughout most of the United States. We are everywhere you and your party will go to campaign: Arkansas and Atlanta and Austin, Dallas and Detroit and Denver, Los Angeles and Las Vegas, Baltimore and Boston, Chicago and Charlotte. Many will remain there indefinitely, unable to go home, precisely because you have lied to them and betrayed them. We will not let you escape from the net of lies you have woven. Wherever you turn, you will find us, ready to call you out."
The situation in New Orleans is a problem that will not go away. Men like Mark Folse will make absolutely sure of that.
"Scandal" Is Too Small a Word
The Abramoff scandal directly touches some sixty Republican congresspeople, according to campaign finance records that show where the disgraced lobbyist sent his money. Mr. Bush recently promoted the lead investigator in this case, effectively removing him from the investigation. Despite this, the hard look into Mr. Abramoff's dealings continue. Mr. Abramoff's plea deal has a lot of people in Washington suffering from flop-sweat.
Patrick Fitzgerald's investigation into the outing of a deep-cover CIA agent by administration officials continues apace, and has already cashiered Cheney's chief of staff, Lewis Libby. According to t r u t h o u t investigative reporter Jason Leopold, Fitzgerald has "spent the past month preparing evidence he will present to a grand jury alleging that White House Deputy Chief of Staff Karl Rove knowingly made false statements to FBI and Justice Department investigators and lied under oath while he was being questioned about his role in the leak of covert CIA agent Valerie Plame's identity more than two years ago, according to sources knowledgeable about the probe."
"Although there have not been rumblings regarding Fitzgerald's probe into the Plame leak since he met with the grand jury hearing evidence in the case more than a month ago," continued Leopold in his January 10th report , "the sources said that Fitzgerald has been quietly building his case against Rove and has been interviewing witnesses, in some cases for the second and third time, who have provided him with information related to Rove's role in the leak."
None of this will be mentioned in the State of the Union speech tonight. The Bush administration continues to stonewall these investigations with all its might - Mr. Bush has denied ever knowing Jack Abramoff, despite the existence of several pictures showing them glad-handing each other in the White House - and the Republican-controlled congress will certainly do nothing to advance the questions being asked.
In contrast, a portion of the speech will certainly be dedicated to moralistic sloganeering about values. Remember, as high-flown words about truth and justice are spoken, what the Abramoff and Plame scandals represent: a government run by thieves, stroked by swindlers, and staffed by assassins who sing of defending the nation even as they cast us down into greater danger.
And, by the way, the Enron trial started on Monday.
The Middle East
2,242 American soldiers have died in Iraq. Tens of thousands more are grievously wounded. Tens and tens of thousands of civilians are dead or maimed. Scores more simmer in rage and pick up weapons to attack American forces. American soldiers wishing to go around the Pentagon to augment their meager armor have been threatened with the revocation of death benefits for their families. A coalition of fundamentalist Shiite groups has taken over the government, the two main parts of which are notorious terrorist organizations with umbilical ties to Iran. Hundreds of billions of dollars have been spent to do this. There is no end in sight.
Three years ago, in another State of the Union address, Mr. Bush told the nation that Iraq was in possession of 26,000 liters of anthrax, 38,000 liters of botulinum toxin, 500 tons (which is 1,000,000 pounds) of sarin, mustard and VX nerve agent, 30,000 munitions to deliver these agents, mobile biological weapons labs, al Qaeda connections, and uranium from Niger for use in a robust nuclear weapons program. Mr. Bush will have to work very hard tonight to tell a lie as vast, dramatic and bloody as this.
Certainly, Mr. Bush will sing the praises of bringing democracy to the Middle East. It is worthwhile, however, to consider what his concept of democracy has accomplished to date. Six months ago, a radical named Mahmoud Ahmadinejad was elected president of Iran. Thanks to the intense feelings within Iran's populace about the US occupation of Iraq, Ahmadinejad has been able to unify his country behind the establishment of a nuclear program that frightens the rest of the world. Ahmadinejad's election itself owes a great deal to Mr. Bush's policies on Iraq.
Last week, the terrorist organization Hamas was overwhelmingly elected by the Palestinian people to run their government, leaving the Fatah party shocked and displaced. While the success of Hamas has much to do with Fatah's corruption and lack of progress on several fronts, the slow radicalization of the general population in the Middle East once again can be laid at the doorstep of Mr. Bush. It has been revealed that Bush's decision to disengage from the peace process between Israel and Palestine several years ago was a disastrous choice. Couple that with the occupation of Iraq and the torture of its citizens, and few can be surprised when the general population in the Middle East turns toward more radical elements.
Democracy is a tricky thing. The fact that people in Iraq, Iran and Palestine are afforded the opportunity to vote, instead of suffering the absolute control of a dictatorship, is arguably a good thing in the main. Yet methods matter. When the Iraqi people are given the vote by way of a ravaging war that inflames the passions of the region and enshrines a radical government, democracy becomes its own worst enemy. When that ravaging war empowers a fringe president in Iran, democracy becomes its own worst enemy.
Methods matter. Democracy does not exist in a vacuum. When it is forced upon a population at the point of a sword, that population will see the sword as the best viable option to exercise its collective will. Almost immediately, democracy will be used to elect radicals, and those radicals will dispose of democracy at the first opportunity. The radicalization of governments all across the Middle East has made the world substantially more dangerous. Mr. Bush will speak of progress tonight. The only progress being made is toward a general conflagration.
On the other hand, Exxon Mobil has posted a $32 billion profit for the last year. This stands as the largest single one-year profit in the entire history of the world. Progress indeed.
The Unitary Executive Tapping Your Phone
Mr. Bush and friends have been jumping through flaming hoops to justify the blatantly illegal policy of spying on Americans by way of the National Security Agency. Their tortured arguments in favor of this action, and their flat-footed declaration that the policy will continue, makes confetti of the Fourth Amendment.
More than that, however, it moves this nation one step closer to having an Executive Branch that supersedes all others in power and scope. Not only will Mr. Bush spy on whomever he pleases, but he will also torture whomever he pleases. Put simply, the constitutionally-required separation of powers, the checks and balances that have maintained the stability of this republic, is being destroyed. This will echo down the corridors of our history long after Mr. Bush has left his office.
On Monday afternoon, Senate Democrats failed to muster the necessary 41 votes needed to avoid cloture on the nomination of Samuel Alito. The man will be elevated to the highest court. Beyond the fact that Alito is hostile to a woman's right to choose, hostile to privacy rights in the face of unwarranted police intrusion, and hostile to the poor and disadvantaged, there is the matter of his opinion on the powers of the Executive. In short, he agrees with Mr. Bush.
The Reign of Witches
The state of this union is not good. We are poorer, frightened, faced with the swelling ranks of enemies our leaders have created, and hell-bent to do away with the most precious aspects of our system of government. We are surveilled, propagandized, intimidated. We empower the radicals and disenfranchise the common good. We are fed swill via the television and thus convinced that what they tell us is what we already believe. We are bought, and we are paid for.
The radicals running this country have long desired to destroy the government's ability to govern - they found things like taxes intrusive, which is amusing when one hears them now defending warrantless spying on Americans - and they are well along the path towards success. The budget is destroyed, spent on tax cuts and the Iraq occupation, while millions of Americans suffer the loss of necessary services. The one percent of the one percent is making a killing, and the rest of us are left behind.
If there is hope to be found in all this, it is in the words of Thomas Jefferson, written 208 years ago after the passage of the Sedition Act.
"A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles. It is true that in the meantime we are suffering deeply in spirit, and incurring the horrors of a war and long oppressions of enormous public debt. If the game runs sometimes against us at home we must have patience till luck turns, and then we shall have an opportunity of winning back the principles we have lost, for this is a game where principles are at stake."
William Rivers Pitt is a New York Times and internationally bestselling author of two books: War on Iraq: What Team Bush Doesn't Want You to Know and The Greatest Sedition Is Silence .
By William Rivers Pitt
t r u t h o u t | Perspective
Tuesday 31 January 2006
i knew that i was dying.
something in me said, go ahead, die, sleep, become
them, accept.
then something else in me said, no, save the tiniest
bit.
it needn't be much, just a spark.
a spark can set a whole forest on
fire.
just a spark.
save it.
- Charles Bukowski
"He shall from time to time," reads the Constitution, "give to the Congress information of the state of the union, and recommend to their consideration such measures as he shall judge necessary and expedient." And so it shall be. George W. Bush will be speaking tonight from the podium in the House of Representatives. Before him will be arrayed Senators, Representatives, generals and judges. The balconies will be filled with observers, luminaries, reporters and a few so-called "special guests" whose presence will be used to reinforce some argument or another.
It shall be quite a thing to see, a show worth watching if only to observe exactly how many lies, distortions, threats, taunts and smirks can be crammed into a single speech. This will be Mr. Bush speaking, after all, and the truth is not in him. It will be in every pertinent sense a mere commercial, a television advertisement from a failing company, a whitewashing of ugly truths by a staggering CEO whose sole desire is to keep the stockholders in line for another quarter.
In the interests of truth, the actual state of this union deserves to be displayed for all to see. This is the deal. This is how it is.
The Real Economy
Since 2000, the number of Americans living in poverty has risen to nearly 37 million. More than 13 million of these are children. More than one in four American families with children make less than $30,000 a year. Look within that number and you will find 46% of African American families with children and 44% of Hispanic families with children fall below this mark. Average annual income for Americans fell once again in 2005. 46 million Americans live without health insurance.
The response to this? Vice President Cheney, three days before Christmas, cast the tie-breaking vote on a spending reduction bill that will fall most heavily on the poor, the infirm and the elderly. Funding for health care, child support, and education subsidies for low-income families has been gutted. Medicaid benefits for the poor were cut by $7 billion, and Medicare programs for the elderly were cut by $6.4 billion. Federal student-loan programs were cut by $12.7 billion.
On the very same day, the Senate passed legislation that drastically cut funding for the departments of Labor, Health and Human Services, and Education. The Head Start program was hit especially hard: the cuts here eliminate some 25,000 slots for low-income children. All in all, these spending reductions are expected to save $40 billion.
Meanwhile, recently-passed tax cuts ravage the budget far more deeply than these drastic budget cuts. Two tax cuts in particular that went into effect on New Year's Day will cost $27 billion, more than half of what the spending reductions are supposed to save. These cuts will cost more than $150 billion over the next ten years. 97% of the money from these cuts will go to households making more than $200,000 a year. Households with incomes under $100,000 will get 0.1% of these cuts.
If all of Mr. Bush's tax cuts are stopped or allowed to expire, $750 billion will be added to the federal budget. That is more than enough to pay for the programs that have been eviscerated. It won't happen, not with the priorities of this administration, but that is the simple math of the matter.
New Orleans Drowned in a Bathtub
The first weeks of September brought to all Americans a devastating tragedy. The city of New Orleans was all but obliterated by Hurricane Katrina when levees meant to hold back the waters failed. The failure of these levees came, in no small part, because of unprecedented budget cuts for the Army Corps of Engineers, which was tasked to keep the levees viable.
The tragedy was compounded by the utterly incompetent management of the Federal Emergency Management Agency and its head, Michael Brown, whose experience with disaster management came while he was serving as an attorney for owners of Arabian horses. In the weeks to follow, lavish promises were made by Mr. Bush. "We will do what it takes, we will stay as long as it takes, to help citizens rebuild their communities and their lives," he said on September 15th.
Those promises have been broken. We have gone from oaths to revive this cherished city to this: "I want to remind people in that part of the world, $85 billion is a lot," said Bush on January 26th. Hundreds of thousands of Americans remain displaced, many holding on by the skin of their teeth in cramped trailers. Thirty million cubic yards of debris remain uncollected - the Washington Post estimated over the weekend that this was "enough to build a five-sided column more than 50 stories tall over the Pentagon." There is not even a plan in place to begin to attack the problem. The Bush administration has left New Orleans to rot, and the next hurricane season is four months away.
Anti-tax crusader Grover Norquist once famously stated that he wanted to shrink the federal government to the size where it could be drowned in a bathtub. As evidenced by the budget cuts and tax giveaways described above, many within this government feel as Norquist does. Thanks to their actions, to the cuts in the Army Corps of Engineers budget, to the nomination of useless cronies like Brown to vital positions of civil defense, to a war in Iraq that has bled the budget further and left Louisiana without sufficient National Guard troops to help the population, it is New Orleans that has been drowned in Norquist's bathtub. A major American city has been shattered, and nothing is done about it.
To add insult to injury, the Bush administration utterly refuses to answer any questions on the matter. Senator Joseph Lieberman of Connecticut, perhaps the most widely-known Democratic defender of Mr. Bush, is the ranking minority member on the Senate Homeland Security and Governmental Affairs Committee. Even Mr. Lieberman is flabbergasted by the stonewalling of the White House.
"My staff believes that DHS (the Department of Homeland Security) has engaged in a conscious strategy of slow-walking our investigation in the hope that we would run out of time to follow the investigation's natural progression to where it leads," Lieberman said last week. "At this point, I cannot disagree. There's been no assertion of executive privilege, just a refusal to answer. I have been told by my staff that almost every question our staff has asked federal agency witnesses regarding conversations with or involvement of the White House has been met with a response that they could not answer on direction of the White House."
Mark Folse, a New Orleans native, operates a blog called "Wet Bank Guide." On Monday, Mr. Folse posted a message for Mr. Bush. "I've never lost the deepest allegiance I've ever held: to my city," wrote Folse. "We have always known we were a people different and unique, as divided as we may seem. That sense of identity as a New Orleanian is the powerful bond that draws me on. It is the deep love of country that drives me - of my country, New Orleans and southern Louisiana. It is the irrational emotional attachment to my piece of America that leads men and women to go willingly up Bunker Hill, to follow General Pickett, to volunteer for Iraq."
"A life of assured privilege has protected you from having to take these sorts of risks," continued Folse, "to find the strength to get up and go into the maw of uncertainty, to risk and gamble your own and not other peoples' lives or money. You can pledge allegiance or sing the anthem or give a stirring speech as well as any, but you know you have no allegiance except self-interest."
"If nothing moves you except your own self-interest," concluded Folse, "then consider this. There are hundreds of thousands of us, scattered throughout most of the United States. We are everywhere you and your party will go to campaign: Arkansas and Atlanta and Austin, Dallas and Detroit and Denver, Los Angeles and Las Vegas, Baltimore and Boston, Chicago and Charlotte. Many will remain there indefinitely, unable to go home, precisely because you have lied to them and betrayed them. We will not let you escape from the net of lies you have woven. Wherever you turn, you will find us, ready to call you out."
The situation in New Orleans is a problem that will not go away. Men like Mark Folse will make absolutely sure of that.
"Scandal" Is Too Small a Word
The Abramoff scandal directly touches some sixty Republican congresspeople, according to campaign finance records that show where the disgraced lobbyist sent his money. Mr. Bush recently promoted the lead investigator in this case, effectively removing him from the investigation. Despite this, the hard look into Mr. Abramoff's dealings continue. Mr. Abramoff's plea deal has a lot of people in Washington suffering from flop-sweat.
Patrick Fitzgerald's investigation into the outing of a deep-cover CIA agent by administration officials continues apace, and has already cashiered Cheney's chief of staff, Lewis Libby. According to t r u t h o u t investigative reporter Jason Leopold, Fitzgerald has "spent the past month preparing evidence he will present to a grand jury alleging that White House Deputy Chief of Staff Karl Rove knowingly made false statements to FBI and Justice Department investigators and lied under oath while he was being questioned about his role in the leak of covert CIA agent Valerie Plame's identity more than two years ago, according to sources knowledgeable about the probe."
"Although there have not been rumblings regarding Fitzgerald's probe into the Plame leak since he met with the grand jury hearing evidence in the case more than a month ago," continued Leopold in his January 10th report
None of this will be mentioned in the State of the Union speech tonight. The Bush administration continues to stonewall these investigations with all its might - Mr. Bush has denied ever knowing Jack Abramoff, despite the existence of several pictures showing them glad-handing each other in the White House - and the Republican-controlled congress will certainly do nothing to advance the questions being asked.
In contrast, a portion of the speech will certainly be dedicated to moralistic sloganeering about values. Remember, as high-flown words about truth and justice are spoken, what the Abramoff and Plame scandals represent: a government run by thieves, stroked by swindlers, and staffed by assassins who sing of defending the nation even as they cast us down into greater danger.
And, by the way, the Enron trial started on Monday.
The Middle East
2,242 American soldiers have died in Iraq. Tens of thousands more are grievously wounded. Tens and tens of thousands of civilians are dead or maimed. Scores more simmer in rage and pick up weapons to attack American forces. American soldiers wishing to go around the Pentagon to augment their meager armor have been threatened with the revocation of death benefits for their families. A coalition of fundamentalist Shiite groups has taken over the government, the two main parts of which are notorious terrorist organizations with umbilical ties to Iran. Hundreds of billions of dollars have been spent to do this. There is no end in sight.
Three years ago, in another State of the Union address, Mr. Bush told the nation that Iraq was in possession of 26,000 liters of anthrax, 38,000 liters of botulinum toxin, 500 tons (which is 1,000,000 pounds) of sarin, mustard and VX nerve agent, 30,000 munitions to deliver these agents, mobile biological weapons labs, al Qaeda connections, and uranium from Niger for use in a robust nuclear weapons program. Mr. Bush will have to work very hard tonight to tell a lie as vast, dramatic and bloody as this.
Certainly, Mr. Bush will sing the praises of bringing democracy to the Middle East. It is worthwhile, however, to consider what his concept of democracy has accomplished to date. Six months ago, a radical named Mahmoud Ahmadinejad was elected president of Iran. Thanks to the intense feelings within Iran's populace about the US occupation of Iraq, Ahmadinejad has been able to unify his country behind the establishment of a nuclear program that frightens the rest of the world. Ahmadinejad's election itself owes a great deal to Mr. Bush's policies on Iraq.
Last week, the terrorist organization Hamas was overwhelmingly elected by the Palestinian people to run their government, leaving the Fatah party shocked and displaced. While the success of Hamas has much to do with Fatah's corruption and lack of progress on several fronts, the slow radicalization of the general population in the Middle East once again can be laid at the doorstep of Mr. Bush. It has been revealed that Bush's decision to disengage from the peace process between Israel and Palestine several years ago was a disastrous choice. Couple that with the occupation of Iraq and the torture of its citizens, and few can be surprised when the general population in the Middle East turns toward more radical elements.
Democracy is a tricky thing. The fact that people in Iraq, Iran and Palestine are afforded the opportunity to vote, instead of suffering the absolute control of a dictatorship, is arguably a good thing in the main. Yet methods matter. When the Iraqi people are given the vote by way of a ravaging war that inflames the passions of the region and enshrines a radical government, democracy becomes its own worst enemy. When that ravaging war empowers a fringe president in Iran, democracy becomes its own worst enemy.
Methods matter. Democracy does not exist in a vacuum. When it is forced upon a population at the point of a sword, that population will see the sword as the best viable option to exercise its collective will. Almost immediately, democracy will be used to elect radicals, and those radicals will dispose of democracy at the first opportunity. The radicalization of governments all across the Middle East has made the world substantially more dangerous. Mr. Bush will speak of progress tonight. The only progress being made is toward a general conflagration.
On the other hand, Exxon Mobil has posted a $32 billion profit for the last year. This stands as the largest single one-year profit in the entire history of the world. Progress indeed.
The Unitary Executive Tapping Your Phone
Mr. Bush and friends have been jumping through flaming hoops to justify the blatantly illegal policy of spying on Americans by way of the National Security Agency. Their tortured arguments in favor of this action, and their flat-footed declaration that the policy will continue, makes confetti of the Fourth Amendment.
More than that, however, it moves this nation one step closer to having an Executive Branch that supersedes all others in power and scope. Not only will Mr. Bush spy on whomever he pleases, but he will also torture whomever he pleases. Put simply, the constitutionally-required separation of powers, the checks and balances that have maintained the stability of this republic, is being destroyed. This will echo down the corridors of our history long after Mr. Bush has left his office.
On Monday afternoon, Senate Democrats failed to muster the necessary 41 votes needed to avoid cloture on the nomination of Samuel Alito. The man will be elevated to the highest court. Beyond the fact that Alito is hostile to a woman's right to choose, hostile to privacy rights in the face of unwarranted police intrusion, and hostile to the poor and disadvantaged, there is the matter of his opinion on the powers of the Executive. In short, he agrees with Mr. Bush.
The Reign of Witches
The state of this union is not good. We are poorer, frightened, faced with the swelling ranks of enemies our leaders have created, and hell-bent to do away with the most precious aspects of our system of government. We are surveilled, propagandized, intimidated. We empower the radicals and disenfranchise the common good. We are fed swill via the television and thus convinced that what they tell us is what we already believe. We are bought, and we are paid for.
The radicals running this country have long desired to destroy the government's ability to govern - they found things like taxes intrusive, which is amusing when one hears them now defending warrantless spying on Americans - and they are well along the path towards success. The budget is destroyed, spent on tax cuts and the Iraq occupation, while millions of Americans suffer the loss of necessary services. The one percent of the one percent is making a killing, and the rest of us are left behind.
If there is hope to be found in all this, it is in the words of Thomas Jefferson, written 208 years ago after the passage of the Sedition Act.
"A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles. It is true that in the meantime we are suffering deeply in spirit, and incurring the horrors of a war and long oppressions of enormous public debt. If the game runs sometimes against us at home we must have patience till luck turns, and then we shall have an opportunity of winning back the principles we have lost, for this is a game where principles are at stake."
William Rivers Pitt
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?
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 over-consume...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?
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 over-consume...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.
Ka-booom!
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 fergiewhitney@msn.com.
Copyright © 1998-2006 Online Journal
Email Online Journal Editor
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.
Ka-booom!
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 fergiewhitney@msn.com.
Copyright © 1998-2006 Online Journal
Email Online Journal Editor
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
NO, MAKE IT A LOT 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"
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
NO, MAKE IT A LOT 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"
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