Interesting speculation by Bob Cesca in Salon. Can he be right? Can Fat Donny’s uniformly disastrous economic policies be nothing more than market-rigging for his own profit? The ultimate insider, trading? Why not? It makes sense when no other explanation does, not even stupidity. A total moron would stumble now and then into sound economic policy.
…Worst of all, Trump has clumsily staggered beyond the ludicrous economic policies of the Bush years to further destabilize financial markets, including your 401k accounts and the future security of your employment. Specifically, the president’s trade war of choice against China has turned a steadily rising Dow Jones average, through 2017, into an unstable sawtooth pattern with massive single-day declines that are now tempting a full-on 2008-style collapse.
If you don’t believe me, check out the markets from January to March of 2018, during the months immediately following Trump’s tax cut. Normally, a tax cut would drive the financial markets upward. But in March of 2018, just a few months after the bill was signed, Trump stupidly launched his trade war by announcing 25 percent tariffs on steel and 10 percent tariffs on aluminum, applied to all of our trading partners. From those months onward — including today, as I write this article — the Dow, S&P and Nasdaq have been unstable messes.
At risk of burying the lede, I have a theory that Trump and his cronies may be manipulating and shorting the markets, reaping vast profits off the declines. Every time Trump tweets or blurts new tariff threats or economic bellicosity aimed at China, the market takes a dump. As we all know, Trump hasn’t divested from his business interests. We also know that Trump has manipulated the markets before, based on a massive investigation in the New York Times indicating that Trump engaged in a scheme with his dad, Fred Trump, known as “greenmailing…”
What happens every time a large company announces that they're going to fire thousands of people? Their stock goes up. Every. Time. So it seems to be a reasonable conclusion that our Wall Street friends love them some unemployment! Jobs mean wages, after all, and wages come out of the bottom line. Bad wages! Terrible horrible no-good very bad wages!
And yet, today we have this:
The major U.S. stock indices fell at the open Friday morning and continued falling, on the heels of a employment report that showed the jobless rate tick up to 9.2 percent in June...
So... Wall Street doesn't love them some unemployment? I'm terribly confused now.
I guess no one could have foreseen that when you do everything you can to eliminate jobs, the end result is likely to be, y'know, a lot of people without jobs…
Ryan Grim argues that the Federal Reserve Board, over the years, has bought up or otherwise co-opted much of the economic community. With these results:
Greenspan told Congress in October 2008 that he was in a state of “shocked disbelief” and that the “whole intellectual edifice” had “collapsed.” House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”
“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well…”
Though [Alan Blinder] is squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.
Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. “Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant,” says Johnson.
In closed-door meetings, Blinder did what so few do: challenged assumptions. “The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he’d come out and say, ‘Well, that’s not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.’ And it just created a stir inside — it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was disrupted.”
It didn’t sit well with Greenspan or his staff. “A lot of senior staff...were pissed off about Blinder — how should we say? — not playing by the customs that they were accustomed to,” Johnson says.
Ben Bernanke didn’t make that mistake, and look where he is today. We’re in safe hands.
Thurman Arnold, a Yale law professor from Wyoming who became FDR’s trust-buster, in 1937 published a book called The Folklore of Capitalism. He knew a thing or two about depressions by then, and maybe we can learn from him. Not that we will. We still believe in the same mythology, and it has gotten us into the same mess. What the hell, though. Here’s an excerpt from his book:
In every field of industrial activity great organizations had built themselves into similar positions of power. They had done so under a mythology of private property which prevented those who were exploited from observing what was going on. The public saw the whole series of events as a series of horse trades by independent individuals. This mythology had become so completely misleading that men could not diagnose what was wrong when these corporate principalities failed to function, or why they injured so many people. The remedies proposed on the assumption that the corporations were individuals working for profit came out wrong because the corporations were not individuals. It was as if men assumed that an automobile was a horse and tried to run it on hay.
The class of people who could use these financial symbols realistically and unscrupulously rose to power, regardless of their efficiency as producers. They operated within a folklore which regarded the trading instinct as the salvation of the country. Traders are necessarily ruthless men. The ethics of trading is a series of ethical contradictions. Therefore, when everyone else had dropped the reins of power, this small group was in a position to seize them.
Thus the Van Sweringens, who had acquired their trading skill in real estate, obtained control of great railroad enterprises. Small blocks of stock representing an infinitesimal part of the so-called partnership gave them power over an empire. The power thus gained was without any responsibility because these blocks of stock were thought of as private property. Men skilled in the tricks which could be played with these cards could always dominate experts in transportation when the control of a railroad was at stake.
If one reads the careful investigation made by the Securities and Exchange Commission into the activities of protective committees in reorganization, one finds that those in control were almost always financiers and not technicians. A trading class was elevated to power who knew nothing of the techniques of the organizations which they led. Actual goods and services were dispensed by a great army of salaried technicians who were given neither power nor security. Economics and law assumed that everyone was acquiring private property under the impulsion of the ‘profit motive.’ “You can’t get efficiency in operation without a profit motive,” said the profound students of social organization.
When such organizations got into trouble, the remedies proposed were formulated on the assumption that they were to be applied to individuals who were exercising independent control of tangible things which they owned. Had there been a realization that these organizations were not dealing with
private property, it would have been obvious that the remedy
lay in giving the control to men with a different sense of responsibility.
The romantic legal and economic ritual of the time, however, was built up around the ideal that a trader without responsibility to the groups involved made the best general in an industrial army. In the situation which resulted only those could rise to power and rank who were more interested in the manipulation of financial symbols than in transportation, or housing, or the actual production and distribution of any sort of goods. Position and rank obtained in this fiscal world had carried no social obligation because they were subject to the rules which governed the accumulation of private property.
Hint: the Lady is behind Door (b) …
Focus just on the big four money center banks: Citi, B of A, Wells Fargo, JPMorgan. According to this estimate, they need around $450 billion. Meanwhile, their combined market cap is only about $200 billion — and part if not all of that market cap surely represents the “Geithner put,” the hope that stockholders will in effect get a handout from the feds.
Given these numbers, it’s extremely hard to rescue these banks without either (a) giving a HUGE handout to current stockholders or (b) effectively taking ownership on the part of we, the people. Of these, (a) would be politically unacceptable as well as bad policy — but the Obama administration isn’t ready to go for (b), because it’s not in our “culture”.
Hence the perplexity of policy. Our best hope right now is that the “stress test” will make (b) inevitable — that Treasury will declare itself shocked, shocked to find that the banks are in such bad financial shape, leaving government receivership unavoidable.
As seen on Wall Street:
(1) I support the Obama pay cap for CEOs of companies on the dole.
(2) My choice would be to cap them at the rate of a 4-star general or admiral, with max seniority.
(3) If you sent all Fortune 500 CEOs and their #2s to St. Elba, performance of their companies would not on average deteriorate. The “myth of the irreplaceable CEO” is just that — myth.
Opposite Land, from the New York Times:
Most Senate Republicans remained opposed to the measure, criticizing it as a case study in excessive spending that would do little to lift the economy. Some conservatives indicated Friday night that they would push for time to study the new legislation before any final vote.
“We want to stimulate the economy, not mortgage the future of our children and grandchildren by the kind of fiscally profligate spending embodied in this legislation,” said Senator John McCain of Arizona, the defeated Republican presidential nominee, who has emerged as a chief opponent of the proposal.
Real World, from Media Matters:
Economist Dean Baker, co-director of the Center for Economic and Policy Research, explains: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. ... Any reporter who does not understand this fact has no business reporting on the economy.”
Unfortunately, many of the reporters who have shaped the stimulus debate don’t seem to understand that.
ABC’s Charles Gibson portrayed spending and stimulus as opposing concepts in a question to President Obama: “And as you know, there’s a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn’t stimulate. A lot of people have said it’s a spending bill and not a stimulus…”
If there’s one fact that should be made clear in every news report about the stimulus package working its way through Congress, it is this: Government spending is stimulative.
That’s a basic principle of economics, and understanding it is essential to assessing any stimulus package. So it should be an underlying premise of the media’s coverage of the stimulus debate. Unfortunately, that hasn’t been the case. Indeed, reporters routinely suggest that spending is not stimulative.
Economist Dean Baker, co-director of the Center for Economic and Policy Research, explains: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple... Any reporter who does not understand this fact has no business reporting on the economy.”
Unfortunately, many of the reporters who have shaped the stimulus debate don’t seem to understand that.
ABC’s Charles Gibson portrayed spending and stimulus as opposing concepts in a question to President Obama: “And as you know, there’s a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn’t stimulate. A lot of people have said it’s a spending bill and not a stimulus.”
That formulation — “it’s a spending bill and not a stimulus” — is complete nonsense; it’s like saying, “This is a hot fudge sundae, not a dessert.” But nonsensical as it is, it has also been quite common in recent news reports.
There’s another problem with Gibson’s formulation, though — in describing the stimulus as a “spending bill,” he ignores the fact that the bill contains tax cuts, too. Lots and lots of tax cuts. And those tax cuts, by the way, provide less stimulus than government spending on things like food stamps and extending unemployment benefits. It probably goes without saying that Gibson didn’t ask if the bill would be more effective if the tax cuts were replaced by additional spending.
MSNBC’s Mika Brzezinski, among others, has repeatedly suggested “welfare” provisions in the bill wouldn’t stimulate the economy. This is the exact opposite of true; those provisions are among the most stimulative things the government can possibly do. There are some fairly obvious reasons why that is true, beginning with the fact that if you give a poor person $100 in food stamps, you can be pretty sure they’re going to spend all $100 of it; but if you give a rich person $100 in tax cuts, they probably won’t spend much of it at all.
But we needn’t rely on logic and common sense to know that welfare spending is stimulative; economists study these things. One such economist is Mark Zandi of Moody’s Economy.com, who served as an adviser to John McCain’s presidential campaign. Zandi has produced a handy chart showing how much a variety of spending increases and tax cuts would stimulate the economy. According to Zandi, a dollar spent on increasing unemployment benefits yields $1.64 in increased gross domestic product, and a dollar spent on food stamps yields $1.73 in GDP.
As for tax cuts, Zandi says the most effective form is a payroll tax holiday. A one dollar reduction in federal revenues as a result of such a tax holiday would produce a $1.29 increase in GDP — far less than the benefit realized from extending unemployment benefits, increasing food stamps, providing general aid to state governments, or spending on infrastructure.
Yet if you turn on MSNBC any given morning, you’re likely to find Mika Brzezinski saying something like, “I want to look at the plan and how much of it is sort of welfare programs and how much are things that we know, either from history or because economic experts somehow know this, actually stimulates the economy.” Or like this: “Does this plan add up to the definition of stimulus? I don’t think it does. And I don’t question the value of food stamps and helping low-income people pay for college. It just shouldn’t be in this bill.” Or this: “If you’re gonna have welfare programs in this bill, call them welfare programs and pass them, but don’t call them facets of the bill meant to stimulate the economy. I do feel like there’s some old politics at play here.”
There’s old politics at play, all right — the old politics of demonizing “welfare spending” without any regard for the simple truth that such spending not only helps those Americans who are struggling the most feed their families, it also does more to stimulate the economy than anything else you can think of.
What you probably won’t see is Mika Brzezinski or Charles Gibson or any other TV reporter suggesting that the tax cuts in the bill are not stimulative and should be stripped — even though they are less effective as stimulus than unemployment benefits and food stamps.
At this point, it becomes impossible to ignore the elephant in the room: Television anchors like Charles Gibson are not going to qualify for food stamps anytime soon. But they would certainly benefit greatly from some tax cut provisions that wouldn’t do nearly as much to stimulate the economy.
(This is not the first time Gibson has shown himself to be badly out of touch on basic economic issues. During a Democratic presidential primary debate, Gibson challenged the candidates on their support for repealing President Bush’s tax cuts for people making more than $200,000 a year by saying that a family in which both parents are schoolteachers would be hit by the repeal. Gibson’s cluelessness was so apparent, the audience actually burst out laughing at him.)
So far, the news media’s coverage of the stimulus debate has consisted largely of repeating false Republican spin and pontificating about which side has been making their arguments more successfully (all the while ignoring the media’s own role in aiding the GOP.)
The bright side is that if reporters care about informing the public, it’s pretty easy to do — they just have to start basing their reports on the true premise that government spending is effective stimulus, rather than on the false premise that it isn’t. Everything else flows easily from there; for example, asking Republicans why they want to lard up the bill with less-stimulative tax cuts rather than unemployment benefits.
(Jamison Foser is Executive Vice President at Media Matters for America.)
…There is a much better solution to the current financial crisis. But it requires discarding what has been conventional “wisdom” for too long: that government intervention in the economy (“big government”) must be avoided like the plague, because the “free market” will guide the economy towards growth and justice.
Let’s face a historical truth: we have never had a “free market”, we have always had government intervention in the economy, and indeed that intervention has been welcomed by the captains of finance and industry. They had no quarrel with “big government” when it served their needs.
It started way back, when the founding fathers met in Philadelphia in 1787 to draft the constitution. The first big bail-out was the decision of the new government to redeem for full value the almost worthless bonds held by speculators. And this role of big government, supporting the interests of the business classes, continued all through the nation’s history.
The rationale for taking $700bn from the taxpayers to subsidise huge financial institutions is that somehow that wealth will trickle down to the people who need it. This has never worked…
Don’t forget the man who caused the Merrill Lynch collapse. Just last year, Stanley O’Neal was paid $48 million a year and pocketed a $160 million severance package when he was fired. The stock had gone from the $50s to $5. This is the way capitalists operate on Wall Street. At a certain level no one is held accountable.
Now we are on the brink of bailing out similar firms, with similar compensation packages, with no agreements as to pay for the remaining executives and no equity for the taxpayers. My suggestion is that they be paid –$50 million, and be required to cough up that amount in back wages before they get any bailout.
Those opposing any limits on executive compensation argue that limits might discourage some firms (their executives) from participating. That’s patriotism for you.
Treasury Secretary Henry Paulson says we have to bail these firms out to save the country, but the greedy executives may balk at saving the country for fear of missing out on obscene golden parachutes. That, too, is patriotism for you.
Former President George W. Bush, who has already made America into an evil, clumsy and stupid clown in the eyes of the world, delivers a farting shot at the United Nations:
Amid a long ode to the importance of continuing the fight against terrorism, [Bush] devoted one paragraph to the rescue plan. “We’ve promoted stability in the markets by preventing the disorderly failure of major companies,” Mr. Bush said. He noted that many were watching how the United States responded because economies were “more closely connected than ever before.”
But for some leaders, the Bush bailout plan seemed hypocritical given the tough course Washington has often advised struggling nations to take.
“What you are seeing here is the letting off of some political steam,” said Mark Malloch Brown, a British cabinet minister and former senior United Nations official. “They are all remembering the very hard, unforgiving advice that they got from American financial institutions” to “deflate your economy, let your banks go to the wall,” he said. “There is a resentment at what they would see as a further evidence of double standards.”
Former United States President George W. Bush brings himself up to speed on the collapse of the American economy:
Well, my first instinct wasn’t to lay out a huge government plan. My first instinct was to let the market work until I realized, upon being briefed by the experts, of how significant this problem became.
And so I decided to act and act boldly. It turns out that there’s a lot of interlinks throughout the financial system. The system had grown to a point where a lot of people were dependent upon each other, and that the collapse of one part of the system wouldn’t just affect a part of the financial markets; it would affect the average citizen — and how. Well, it affect their capacity to borrow money to buy a house or to finance a college loan. It affect the ability of a small business to get credit. In other words, the system risk was significant, and it required a significant response, and Congress understands that. And we’ll work to get something done as quickly and as big as possible.
Sarah Palin today on Bush’s bailout with your dollars of the American International Group:
“Disappointed that taxpayers are called upon to bail out another one. Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful for Americans, so you know the shot that has been called by the Feds — it’s understandable but very, very disappointing that taxpayers are called upon for another one.”
This is just a snippet from Nobel Prize-winning economist Joseph Stiglitz’s clear and compelling explanation of how Bush, Greenspan and the Wall Street usurers drove our economy over a cliff — and what we ought to do about it. But of course won’t.
…We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is “too big to fail.” If it is that big, it should be broken up…
New stats from what Phil Gramm insists is only a “mental recession” — which phrase is, as the Wall Street shill ought to recognize since he slings shrink lingo so skillfully, a mighty pretty piece of projection.
Ads for luxury goods and services are faring best, as they have for years. Ad pages increased in a number of high-end fashion, home décor and travel magazines, like Harper’s Bazaar, Vogue, Architectural Digest and National Geographic Traveler, while several others stayed roughly even.
“The joke here is, ‘Flat is the new up,’ ” said Thomas J. Wallace, editorial director at Condé Nast.
Being an “I told you so, sort of person”, at least when I’m right (let’s not mention the times, as I often am, wrong), I'd like to reiterate something I said in comments back in 2004 on this blog, repeated below:
Tom, I basically agree with you, but the dollar fluctuation is only temporary. Its on a long term downward trend and the rest of the world knows it. Bush and the rest of his crowd might monkey around with it so it doesn't fall apart next week, or even in the next year or two, but eventually the chickens will come home to roost....and we’re the one’s sitting at the bottom of the chicken coop.
You might want to go grab some Krugerrands.
Posted by: Buck on December 10, 2004 10:52 PM
So where are the naysayers now? Gold went down from well over a thousand dollars to the low 900’s on Friday. Which way is it heading long term? Anyone want to venture a guess? I’m sticking with the plan, and I’d buy some on this temporary weakness if I was flush with cash. Anyone changed their minds on this subject?
Before you read this, grab a bucket or be very near a toilet. It's more than enough to make you gag. A longer analysis appears on The Mess that Alan Greenspan Made. I also recommend many of the links on the sidebar of this blog. America is hurting, thanks to Mr. Greenspan, obviously a man who relishes the pain and agony that he foisted on the American people.
Alan Greenspan in 2005:
Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s…
As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.
Allen Greenspan speaking in 2008.
The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress…
We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.
Now that Wall Street is getting a taste of its own medicine (although we get to suffer as well for their sins), a new toy has emerged for all those big boys out there who still have to have the biggest and the baddest toy on the block:
HUMMER, the world’s most iconic boy’s toy, has converted the new right-hand drive H3 into the ultimate gadget for grown ups &mdash a life-sized remote controlled car that definitely won’t be available in your local toyshop.
From the looks of things, there are going to be a good many of these toys to go around for all those toy takers out in the real world. Too bad there won’t be many toys for the poorest little children this Christmas. Could we load these Hummers up with Republicans and let the little children who will have nothing but high priced coal this Christmas man the remotes and drive the whole crowd of Republicans, neocons, White House traitors and Wall Street thieves off a cliff? It sure seems like it might solve a good many problems the nation faces.
As usual, read Bill Greider in The Nation. Immediately. Brief taste below. Full meal here.
Bill Gross, the insightful managing director of PIMCO, the major bond-investment house, has called for virtually doubling the federal deficit in order pump hundreds of billions into new economic activity. When bond holders are more alarmed about the economy than political leaders, you know something is backwards in American politics.
Edwards, alas, probably restrained the size of his stimulus package to convince the media gatekeepers he is not wacko and thus win some coverage for his forward thinking. No such luck. Edwards has his own shortcomings, but he has been victimized by the shallow political culture that empties meaning from presidential campaigns. The press early on consigned him to the “populist” stereotype and largely ignored the serious content of his agenda.
This is the curse that leads to enervating, brain-dead presidential cycles. Substance bores political reporters. Most of them do not understand economics or even know much about how government actually works. Given their ignorance, they prefer to play the role of theater critics and imagine that readers are desperate to hear their highly subjective and utterly unreliable reviews of the sideshow.
Feeling good about the New Year? Let Jim Kunstler take care of that little problem for you:
For the tiny fraction of people who actually pay attention to real events — those, for instance, who know the difference between Narnia and Kandahar -- the final hours of 2007 leading into the fog-shrouded abyss of 2008 must induce great racking shudders of nausea. Has there ever been a society so exquisitely rigged for implosion? The whole listing, creaking, reeking edifice stands like one of those obsolete Las Vegas pleasure palaces awaiting a mere pulse of electrons to ignite a thousand explosive charges perfectly placed to blow away the structural supports, etc., etc.
Posted by Jerome Doolittle at 12:04 PM
Snippets from Two Clues for the Clueless, by Jim Kunstler, the curmudgeon of Saratoga Springs:
But if you venture forward mentally one baby step, you will quickly come to see that, no, this dependence on foreign oil is not itself the problem. The problem is that we have adopted a living arrangement so hopelessly centered around cars and incessant motoring and one of the consequences is an addiction to oil, which we happen to have a declining supply of in our own land. …
The people I know complain endlessly about how stupid President George W. Bush is, and how badly he has lied to the public about this or that. But a casual observer from Mars would have to conclude that President Bush perfectly represents a nation that shows such a thoroughgoing incapacity for thought, and such an aversion to the truth about its own behavior. A people so hopelessly unwilling to get its act together deserves to suffer.
Jim Kunstler with another load of financial offal to tide you over the weekend. Excerpt:
There's also no guarantee that the Fed rate cuts will rescue any big banks, investment houses, or hedge funds. Sooner or later, to either meet redemptions or admit losses, they'll all have to roll out those mortgage-backed securities, CLOs, and other fraudulent items currently hiding in their books, and ask the world what they're worth paying for.
The world will answer by wrinkling its collective noses at the odor emanating from these bundles of financial offal, and that will determine whether some of these outfits stay in business or sink into the mire of financial history.
For some of these outfits, like Bear Stearns, their fate looks already sealed. It was one thing for Bear Stearns to sponsor two loser hedge funds. The reason hedge funds are unregulated, by the way, is because in theory they are only patronized by extremely wealthy clients who are presumed to know what they are doing and whose choices are thought to not require regulation.
But when Bear Stearns turned around a week after their funds tanked and blew a raspberry at these investors by saying "we registered these operations in the Cayman Islands where your lawyers can't touch us, so fuck you" — when Bear Stearns did that, it took the short-end benefit of blowing off some legal fees over the long-term prospect that no one in their right mind would ever invest in a Bear Stearns fund ever again.
Jim Hightower explains, in terms simple enough for all of us economic illiterates to grasp, the exact operations of the subprime mortgage swindles that are presently evicting and beggaring thousands of working class Americans. And yes, we do have a working class. And yes, a class war has been raging in our country without serious interruption since the Reagan years. And yes, Bush’s class has won every important battle.
Seems to me there’s only two basic positions: either oil is being created as we speak at a pace rapid enough to supply our needs, or we’ll reach the peak of oil production at some point, the so-called Hubbert Peak.
Since we have sketchy data to infer from, we don’t know where we are on that curve with certainty. The Saudis, for instance, hold onto the best estimates for their remaining reserves like Bush holds onto information about torture memos and spying on Americans.
There are disagreements among the participants about when the oily dance will come to a finale. Oil companies naturally don’t want people to cut back on their use of oil. For example, Exxon Mobil recently reported a quarterly profit of $10.3 billion, in light of which the executives at Royal Dutch Shell might have been shamed by their measly $8.7 billion over the same period. Anything that tends to get people talking about conserving or switching to realistic methods of transportation is generally anathema to Big Oil.
We probably won’t recognize the actual peak until we’re a bit past it.
Some things, however, are clear. For instance, it’s uncontroversial that the cost of extracting oil goes up as more oil is pumped from that field, because the original pressure of compressed oil decreases and eventually must be supplemented by human ingenuity. It’s also well known that the world’s biggest oil fields are decades old and well into their useful lifecycle.
We’ve found most of the easy oil, says Michael Klare, and we’re headed into the era of tough oil. He cites one new project and two studies in support of his argument.
In the forty years since the discovery of oil in Alaska’s Prudhoe Bay, the largest field to be developed anywhere in the world is the Kashagan project in the Kazakh section of the Caspian Sea, currently estimated at 9-13 billion barrels. The project is big enough for Exxon Mobil, Shell, ConocoPhillips, Total (French), and Eni (Italian) to share interest. It was originally planned to be online in 2005 at a cost of $10 billion. The new estimate is 2010, for $19 billion. The government of Kazakhstan is threatening to take control of the project, but in fact it appears that the project faces a number of difficult issues.
The oil reservoir itself is buried beneath high-pressure strata of gas, making its extraction exceedingly tricky, and it contains abnormally high levels of deadly hydrogen sulfide; moreover, the entire field is located in a shallow area of the Caspian Sea that freezes over for five months of the year and is the breeding ground for rare seals and beluga sturgeon.
No doubt they’ll get that oil out, but it’ll be expensive.
Two new reports, one from the International Energy Agency, part of the Organization for Economic Cooperation and Development, and the other submitted by the National Petroleum Council to the US Department of Energy, add fuel to the fire. In fact they throw gasoline onto it with predictions of significant near-term dislocations worldwide.
The IEA report, according to Klare, points out that demand for oil is increasing rapidly, especially in surging Asian economies like China and India. High prices at US pumps have not kept Americans from setting new records for distances driven. The demand does not show any signs of decreasing anywhere. To keep up with current demand, new demand, and declining production from older fields requires the production of five million new barrels a day. Since the older fields, like those in the US, can’t increase production, those five million barrels must come from
…Iran, Iraq, Kuwait, Saudi Arabia, Algeria, Angola, Libya, Nigeria, Venezuela, and one or two other countries. These are not places that exactly inspire investor confidence of a sort that could attract the many billions of dollars needed to ramp up production enough to satisfy global requirements.
Read between the lines and one quickly perceives a worst-case scenario in which the necessary investment is not forthcoming; OPEC production does not grow by five million barrels per day year after year; ethanol and other substitute-fuel production, along with alternate fuels of various sorts, do not grow fast enough to fill the gap; and, in the not-too-distant future, a substantial shortage of oil leads to a global economic meltdown.
If we’re lucky. Which major power would lay down its arms rather than go to war over the dregs of the oil its military machine requires?
The National Petroleum Council is a oil-industry association. Its recent report recommended, of course, more drilling in federal lands, but also increased fuel-efficiency standards.
Contributing to the buzz around its release was the identity of the report’s principal sponsor, former Exxon CEO Lee Raymond. Having previously expressed skepticism about global warming, he now embraced the report’s call for the taking of significant steps to curb carbon-dioxide emissions.
Like the IEA report, the NPC study does claim that — with the perfect mix of policies and an adequate level of investment — the energy industry would be capable of satisfying oil and gas demand for some years to come. “Fortunately, the world is not running out of energy resources,” the report bravely asserts. Read deep into the report, though, and these optimistic words begin to dissolve as its emphasis switches to the growing difficulties (and costs) of extracting oil and gas from less-than-favorable locations and the geopolitical risks associated with a growing global reliance on potentially hostile, unstable suppliers.
And the costs are significant. The NPC estimates that by 2030 the world will need to spend about $3,000 for each individual now alive, or $20 trillion, to ensure that enough oil exists to meet expected demand. Get out your wallet…
Another area of agreement between the two reports:
Both reports claim that with just the right menu of corrective policies and an unrealistic streak of pure luck — as in no set of major Katrina-like hurricanes barreling into oil fields or refineries, no new wars in Middle Eastern oil producing areas, no political collapse in Nigeria — we can somehow stagger through to 2012 and maybe just beyond without a global economic meltdown.
That’s right, five years. After that, it gets ugly.
More competition among buyers, more difficult places to drill and extract, less stable host countries, aging fields with declining production.
What would six-dollar-a-gallon gas mean to the American Dream?
As thousands of Americans are or soon will be on the verge of losing their homes, one of the great charlatans of television seems to be upset (see video below). In the meantime, the leisure class worries not at all. Are we prepared for the inevitable Bushvilles yet? Some folks aren’t a bit worried about it. They've probably got their Euros stashed in an offshore bank already. In the meantime,
In Wall Street terms, it was a display of quite remarkable cool. As the investment bank Bear Stearns scrambled to deal with losses of $1.5bn (£740m) at two of its hedge funds last month, the troubled brokerage’s top two executives were competing in a week-long national bridge tournament in Nashville.
On the Tennessee card tables, Bear Stearns’ co-president, Warren Spector, did particularly well — totting up masterpoints, he came 95th in a field of 4,822, justifying his reputation as the financial industry’s “king of bridge”. His boss, veteran chief executive Jimmy Cayne, was down the field, yet still respectable, in 347th position.
Why are they not worried? The Democrats will be in complete control by the next election and the crash can probably be averted by some deft moves that will stave off the inevitable until then. What will the world remember? The Bushvilles or the Clintonvilles? Let’s hope we can do better — but it may be too late.