Fuel Prices

[gleno]

Having given some thought to some of the thoughts on fuel pricing expressed by forum members in the Barack Obama thread I believe it is worthwhile giving this its own thread.

There is no doubt in forum members minds that we are getting screwed at the pump and consequently everywhere else, as ALL prices rise.

I feel its about time the folk wisdom and the ignorant media generated explanations were dispelled and forum members actually learned WHY you are getting shafted.

This article sums it up very accurately. If you do not truly understand what money, credit and the central banking systems are and how that system operates (start educating yourselves) you may find this hard to fathom.

Most of your politicians don't fully comprehend the workings of the central banking system (some have no clue at all) and the one's who do are in their employ via political donations from special interest groups. Don't expect politicians to solve the problem.

I know the conventional wisdom says that high fuel prices are simply a matter of supply and demand BUT this matter is far from simple.

The biggest single contributor to price increases now is supply chain monopoly and price speculation on purchases of future oil production within that monopoly. In short we are being screwed over by the wealthy players in the futures market.

The simplistic explanation is the central banking monetary system issues credit (money) into the global economy and creates market 'bubbles' in the stock market which hold a lot of money but no true wealth e.g. the dot-com bubble (and crash), the property bubble (and crash) etc.

As each market bubble collapses the speculators create a new one. Your retirement funds are major contributors to these investment bubbles.

With the collapse of the property market the speculators have create the next bubble to convince you that your retirement funds are actually generating massive growth and that when you retire your funds will be available (they won't) so now the latest bubble is the 'oil' bubble. The 'oil bubble' is once again created with cheap bank credit, just like the other bubbles. It will have its multi-year run until it inevitably collapses.

This is not an accident. These bubbles are intentionally created as the central banking system and global collectivist leaning politicians usher you and I into the new world order of global corporate sponsored (read central bank sponsored) world government.

Read this article by F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (PlutoPress) to get an insight into how it all works.

The Reason For Soaring Oil Prices - Pt II By F. William Engdahl

As detailed in an earlier article, a conservative calculation is that at least 60% of today's $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the government's Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme "leverage" of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.

The hoax of Peak Oil-namely the argument that the oil production has hit the point where more than half all reserves have been used and the world is on the downslope of oil at cheap price and abundant quantity-has enabled this costly fraud to continue since the invasion of Iraq in 2003 with the help of key banks, oil traders and big oil majors. Washington is trying to shift blame, as always, to Arab OPEC producers. The problem is not a lack of crude oil supply. In fact the world is in over-supply now. Yet the price climbs relentlessly higher. Why? The answer lies in what are clearly deliberate US government policies that permit the unbridled oil price manipulations.

World Oil Demand Flat, Prices Boom

The chief market strategist for one of the world's leading oil industry banks, David Kelly, of J.P. Morgan Funds, recently admitted something telling to the Washington Post, "One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong."

One of the stories used to support the oil futures speculators is the allegation that China's oil import thirst is exploding out of control, driving shortages in the supply-demand equilibrium. The facts do not support the China demand thesis however.

The US Government's Energy Information Administration (EIA) in its most recent monthly Short Term Energy Outlook report, concluded that US oil demand is expected to decline by 190,000 b/d in 2008. That is mainly owing to the deepening economic recession. Chinese consumption, the EIA says, far from exploding, is expected to rise this year by only 400,000 barrels a day. That is hardly the "surging oil demand" blamed on China in the media. Last year China imported 3.2 million barrels per day, and its estimated usage was around 7 million b/d total. The US, by contrast, consumes around 20.7 million b/d.

That means the key oil consuming nation, the USA, is experiencing a significant drop in demand. China, which consumes only a third of the oil the US does, will see a minor rise in import demand compared with the total daily world oil output of some 84 million barrels, less than half of a percent of the total demand.

The Organization of the Petroleum Exporting Countries (OPEC) has its 2008 global oil demand growth forecast unchanged at 1.2 mm bpd, as slowing economic growth in the industrialised world is offset by slightly growing consumption in developing nations. OPEC predicts global oil demand in 2008 will average 87 million bpd -- largely unchanged from its previous estimate. Demand from China, the Middle East, India, and Latin America -- is forecast to be stronger but the EU and North American demand will be lower.

So the world's largest oil consumer faces a sharp decline in consumption, a decline that will worsen as the housing and related economic effects of the US securitization crisis in finance de-leverages. The price in normal open or transparent markets would presumably be falling not rising. No supply crisis justifies the way the world's oil is being priced today.

Big new oil fields coming online

Not only is there no supply crisis to justify such a price bubble. There are several giant new oil fields due to begin production over the course of 2008 to further add to supply.

The world's single largest oil producer, Saudi Arabia is finalizing plans to boost drilling activity by a third and increase investments by 40 %. Saudi Aramco's plan, which runs from 2009 to 2013, is expected to be approved by the company's board and the Oil Ministry this month. The Kingdom is in the midst of a $ 50 billion oil production expansion plan to meet growing demand in Asia and other emerging markets. The Kingdom is expected to boost its pumping capacity to a total of 12.5 mm bpd by next year, up about 11 % from current capacity of 11.3 mm bpd.

In April this year Saudi Arabia's Khursaniyah oilfield began pumping and will soon add another 500,000 bpd to world oil supply of high grade Arabian Light crude. As well, another Saudi expansion project, the Khurais oilfield development, is the largest of Saudi Aramco projects that will boost the production capacity of Saudi oilfields from 11.3 million bpd to 12.5 million bpd by 2009. Khurais is planned to add another 1.2 million bpd of high-quality Arabian light crude to Saudi Arabia's export capacity.

Brazil's Petrobras is in the early phase of exploiting what it estimates are newly confirmed oil reserves offshore in its Tupi field that could be as great or greater than the North Sea. Petrobras, says the new ultra-deep Tupi field could hold as much as 8 billion barrels of recoverable light crude. When online in a few years it is expected to put Brazil among the world's "top 10" oil producers, between those of Nigeria and those of Venezuela.

In the United States, aside from rumors that the big oil companies have been deliberately sitting on vast new reserves in Alaska for fear that the prices of recent years would plunge on over-supply, the US Geological Survey (USGS) recently issued a report that confirmed major new oil reserves in an area called the Bakken, which stretches across North Dakota, Montana and south-eastern Saskatchewan. The USGS estimates up to 3.65 billion barrels of oil in the Bakken.

These are just several confirmations of large new oil reserves to be exploited. Iraq, where the Anglo-American Big Four oil majors are salivating to get their hands on the unexplored fields, is believed to hold oil reserves second only to Saudi Arabia. Much of the world has yet to be explored for oil. At prices above $60 a barrel huge new potentials become economic. The major problem faced by Big Oil is not finding replacement oil but keeping the lid on world oil finds in order to maintain present exorbitant prices. Here they have some help from Wall Street banks and the two major oil trade exchanges-NYMEX and London-Atlanta's ICE and ICE Futures.

Then why do prices still rise?

There is growing evidence that the recent speculative bubble in oil which has gone asymptotic since January is about to pop.

Late last month in Dallas Texas, according to one participant, the American Association of Petroleum Geologists held its annual conference where all the major oil executives and geologists were present. According to one participant, knowledgeable oil industry CEOs reached the consensus that "oil prices will likely soon drop dramatically and the long-term price increases will be in natural gas."

Just a few days earlier, Lehman Brothers, a Wall Street investment bank had said that the current oil price bubble was coming to an end. Michael Waldron, the bank's chief oil strategist, was quoted in Britain's Daily Telegraph on Apr. 24 saying, "Oil supply is outpacing demand growth. Inventories have been building since the beginning of the year."

In the US, stockpiles of oil climbed by almost 12 million barrels in April according to the May 7 EIA monthly report on inventory, up by nearly 33 million barrels since January. At the same time, MasterCard's May 7 US gasoline report showed that gas demand has fallen by 5.8%. And refiners are reducing their refining rates dramatically to adjust to the falling gasoline demand. They are now running at 85% of capacity, down from 89% a year ago, in a season when production is normally 95%. The refiners today are clearly trying to draw down gasoline inventories to bid gasoline prices up. 'It's the economy, stupid,' to paraphrase Bill Clinton's infamous 1992 election quip to daddy Bush. It's called economic recession.

The May 8 report from Oil Movements, a British company that tracks oil shipments worldwide, shows that oil in transit on the high seas is also quite strong. Almost every category of shipment is running higher than it was a year ago. The report notes that, "In the West, a big share of any oil stock building done this year has happened offshore, out of sight." Some industry insiders say the global oil industry from the activities and stocks of the Big Four to the true state of tanker and storage and liftings, is the most secretive industry in the world with the possible exception of the narcotics trade.

Goldman Sachs again in the middle

The oil price today, unlike twenty years ago, is determined behind closed doors in the trading rooms of giant financial institutions like Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Deutsche Bank or UBS. The key exchange in the game is the London ICE Futures Exchange (formerly the International Petroleum Exchange). ICE Futures is a wholly-owned subsidiary of the Atlanta Georgia International Commodities Exchange. ICE in Atlanta was founded in part by Goldman Sachs which also happens to run the world's most widely used commodity price index, the GSCI, which is over-weighted to oil prices.

As I noted in my earlier article, ('Perhaps 60% of today's oil price is pure speculation'), ICE was focus of a recent congressional investigation. It was named both in the Senate's Permanent Subcommittee on Investigations' June 27, 2006, Staff Report and in the House Committee on Energy & Commerce's hearing in December 2007 which looked into unregulated trading in energy futures. Both studies concluded that energy prices' climb to $128 and perhaps beyond is driven by billions of dollars' worth of oil and natural gas futures contracts being placed on the ICE. Through a convenient regulation exception granted by the Bush Administration in January 2006, the ICE Futures trading of US energy futures is not regulated by the Commodities Futures Trading Commission, even though the ICE Futures US oil contracts are traded in ICE affiliates in the USA. And at Enron's request, the CFTC exempted the Over-the-Counter oil futures trades in 2000.

So it is no surprise to see in a May 6 report from Reuters that Goldman Sachs announces oil could in fact be on the verge of another "super spike," possibly taking oil as high as $200 a barrel within the next six to 24 months. That headline, "$200 a barrel!" became the major news story on oil for the next two days. How many gullible lemmings followed behind with their money bets?

Arjun Murti, Goldman Sachs' energy strategist, blamed what he called "blistering" (sic) demand from China and the Middle East, combined with his assertion that the Middle East is nearing its maximum ability to produce more oil. Peak Oil mythology again helps Wall Street. The degree of unfounded hype reminds of the kind of self-serving Wall Street hype in 1999-2000 around dot.com stocks or Enron.

In 2001 just before the dot.com crash in the NASDAQ, some Wall Street firms were pushing sale to the gullible public of stocks that their companies were quietly dumping. Or they were pushing dubious stocks for companies where their affiliated banks had a financial interest. In short as later came out in Congressional investigations, companies with a vested interest in a certain financial outcome used the media to line their pockets and that of their companies, leaving the public investor holding the bag. It would be interesting for Congress to subpoena the records of the futures positions of Goldman Sachs and a handful of other major energy futures players to see if they are invested to gain from a further rise in oil to $200 or not.

Margin rules feed the frenzy

Another added turbo-charger to present speculation in oil prices is the margin rule governing what percent of cash a buyer of a futures contract in oil has to put up to bet on a rising oil price (or falling for that matter). The current NYMEX regulation allows a speculator to put up only 6% of the total value of his oil futures contract. That means a risk-taking hedge fund or bank can buy oil futures with a leverage of 16 to 1.

We are hit with an endless series of plausible arguments for the high price of oil: A "terrorism risk premium;" "blistering" rise in demand of China and India; unrest in the Nigerian oil region; oil pipelines' blown up in Iraq; possible war with IranAnd above all the hype about Peak Oil. Oil speculator T. Boone Pickens has reportedly raked in a huge profit on oil futures and argues, conveniently that the world is on the cusp of Peak Oil. So does the Houston investment banker and friend of Dick Cheney, Matt Simmons.

As the June 2006 US Senate report, The Role of Market Speculation in Rising Oil and Gas Prices, noted, "There's a few hedge fund managers out there who are masters at knowing how to exploit the peak oil theories and hot buttons of supply and demand, and by making bold predictions of shocking price advancements to come, they only add more fuel to the bullish fire in a sort of self-fulfilling prophecy."

Will a Democratic Congress act to change the carefully crafted opaque oil futures markets in an election year and risk bursting the bubble? On May 12 House Energy & Commerce Committee stated it will look at this issue into June. The world will be watching.

Now if you want to do something about this go and educate your friends and your politicians and demand that the speculators be stopped.

 

[gleno]

Shell CEO says record oil not due to shortage.

LONDON (Reuters) - Oil prices at a record high above $135 a barrel are rising due to market sentiment rather than a shortage of supply, Royal Dutch Shell's chief executive said on Thursday.


U.S. crude oil hit an all-time peak on Thursday, climbing to $135.09, lifted by concern about long-term supply and a host of predictions of further rises from influential investment banks and investors.


"What we say and what we see is there are no physical shortages," Shell's Jeroen van der Veer told Reuters television. He runs the world's second-largest fully publicly traded oil firm by market value.


"There are no tankers waiting in the Middle East, there are no cars waiting at gasoline stations because they are out of stock. This has to do with psychology in the markets and you cannot forecast psychology".


His view that there are no shortages chimes with that of other oil producers, such as members of the Organization of the Petroleum Exporting Countries. Others, such as the U.S. government, say supply is tight.


While rising prices are boosting profit for the industry, the Shell CEO agreed that high oil costs were a mixed blessing.


"For many consumers in the world, this really starts to hit them. Secondly, we see that you get a kind of public outcry.


"At the same time, the only thing that we can do is use the profits we make to invest for additional supplies."

Shell has the largest capital spending programme among its main rivals in 2008, having spent $7.6 billion (3.8 billion pounds) in the first three months of the year alone. It was also alone among its peers in boosting output.


Oil's climb has led to rising costs in the oil industry for services such as drilling rigs and companies are increasing the long-run price assumptions they use for planning their business.


Van der Veer, asked if Shell needed a price around $80 a barrel to break even, declined to give a specific figure but said it had grown more costly to bring on new supply.


"When oil prices went up, you see that the cost for new projects for the whole industry, not only for Shell, became a lot more expensive," he said.


"In our industry we see quite severe inflation. We don't know if that will plateau out or go up further."

 

[clintard]

ZEITGEIST, The Movie - What does Christianity, 911 and The Federal Reserve all have in common?

http://video.google.com/videoplay?docid=-594683847743189197&q=zeitgeist&ei=qrU3SLGmA4ym4QKQodXTAw

 

[shawn kloker]

Hydrogen generators are coming.Then the oil prices will go down!

 

[Rusty McNeil]

I think one way to curb the specualation is to require that specualtors actually purchase in full all the oil they are specualating on rather than simply paying for "options"....make 'em pay to play and it might back 'em offf a little....

 

[gleno]

I think one way to curb the specualation is to require that specualtors actually purchase in full all the oil they are specualating on rather than simply paying for "options"....make 'em pay to play and it might back 'em offf a little....

Agreed. But the villan in the plot is the central banks that generate money out of thin air then lend it to middlemen and speculators (often bank owned or controlled companies) at favourable rates so they can secure supplies at 6% down?

What kind of government is so stupid that it cannot see that this unregulated process SCREWS EVERYONE except the uber rich?

 

[gleno]

I think one way to curb the specualation is to require that specualtors actually purchase in full all the oil they are specualating on rather than simply paying for "options"....make 'em pay to play and it might back 'em offf a little....

Agreed.

But the villain in the plot is the central banks that generate money out of thin air then lend it to middlemen and speculators (often bank owned or controlled companies) at favourable rates so they can secure supplies at 6% down?

What a scam. Generate money from thin air as a ledger entry on your books, lend it to your buddies who only need 6% deposit (and that's all they are paying interest on) to secure future oil production. The greater the share of future production they 'buy' the scarcer future supplies become and the higher the price goes. It's a bank funded monopoly.

What kind of government is so stupid that it cannot see that this unregulated process SCREWS EVERYONE except the uber rich?

 

[82ndCowboy]

What kind of government is so stupid that it cannot see that this unregulated process SCREWS EVERYONE except the uber rich?

Why The very same Government that is controlled by the uber rich... Of course!

 

[gleno]

Why The very same Government that is controlled by the uber rich... Of course!

Exactly.

 

[gleno]

Germany in call for ban on oil speculation


By Ambrose Evans-Pritchard
Last Updated: 12:53am BST 27/05/2008


German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.

Speculators are split, with some betting that oil will fall

Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. ?It?s pure speculation,? he said.
George Soros: rocketing oil price is a bubble
Oil has doubled in price over the past year and the concerns are echoed on Washington?s Capitol Hill where irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market.
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There is now broad support in Germany for a clampdown on ?locust? funds. President Horst K?hler said modern capitalism had turned into a ?monster?, bringing the entire financial system to the brink of collapse this spring.
The Social Democrats form part of Chancellor Angela Merkel?s ruling coalition. Her own Christian Democrat Party shares concerns that funds are causing a fresh bubble in commodities, risking further havoc for the real economy and society.
In the long run, any scheme to ban futures trading would be extremely hard to enforce as the markets would tend to move offshore. Hedge funds are probably not the culprit in any case.
Speculators are split, with some betting that oil will fall. The mass of money coming into the commodity indexes is mostly from pension funds and long-term investors.
Oil markets are likely to shrug off the moves as political posturing, instead focusing on Norway?s suspension of crude output at three platforms, cutting supply by 138,000 barrels a day.
The news comes as Lloyd?s Marine Intelligence reported Opec oil shipments fell by 1m barrels per day in the four weeks to May 4, confirming suspicions that the market has been chronically short of supply.

 

[Rusty McNeil]

Our currently weak American dollar is also part of the problem as well, although I think it's still just a cyclical thing.....

 

[gunrunner]

I personnally think its all bullshit . the rich (oil magnats) getting richer while we pay in the back pocket . $2.09 a litre in NZ and rising !:bang head:

 

[KJShover]

$4.05 a gallon up here now, with $4.76 per gallon for diesel. In the Villages up here its over $8 per gal for unleaded in areas.

 

[diggerzmound]

Hydrogen generators are coming.Then the oil prices will go down!

This is the exact reason that oil prices are so high. Oil companies are finally losing their monopoly, and they cannot stop it any longer. They are making record profits for a reason. They havn't built a refinery in how many years? Why? Because they know that we will eventually move to flex fuels. Its their final stab, once these hydrogen fuels and other cheap forms of fuel come through, their profits are going to tumble. As will the prices. Maybe :bang head:

 

[gleno]

More insight into why fuel prices are high.

The gods of greed

They promised economic stability, order and prosperity. But instead the world's bankers have delivered chaos, debt and uncertainty - and then blamed the feeble governments that surrendered control of the global economy to them. In the first of three extracts from their new book, Larry Elliott and Dan Atkinson explain how the reckless speculation of a super-rich elite has left us all the poorer

• Larry Elliott and Dan Atkinson
• The Guardian,
• Monday June 2 2008
• Article history

Illustration: David Parkins

March 2008 was no time to be a welfare scrounger in Gordon Brown's Britain. That month saw a much-trumpeted move, the latest of many since Labour came to power in 1997, to end the so-called "sick-note culture".
On March 17, Dame Carol Black, the government's national director for health and work, declared that absence and worklessness related to sickness were costing the country ?100bn a year, and it was announced that ministers were to look at replacing the doctor's sick note with a "fit note", detailing what people can do rather than what they cannot when they are on leave for health reasons. This was of a piece with the "tough love" approach of Brown and his predecessor to those on welfare benefits. It was all about reminding those who wanted to get their hands on public money that rights came with responsibilities.
Four days later, the chief executives of Britain's five largest banking institutions - Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland - met the Bank of England. In the jargon of the City, they wanted governor Mervyn King to widen the types of collateral against which the Bank would lend to the clearing banks. In plain English, they wanted him to lend taxpayers' money against much flakier assets than would normally be considered acceptable.
Why did they need this handout? Because banks themselves had stopped lending each other money. The collapse of the US housing market, and the complex financial instruments that had been spun off from it, had caused chaos in the money markets. The victims of last year's "subprime crisis" included two of the world's most respected banks, America's Bear Sterns and France's BNP, while the "credit crunch" that followed claimed Britain's Northern Rock. Those banks that escaped unharmed were sure of only one thing: with so many of their peers exposed to incalculable risks, there was more bad news to come.
That fear seems amply justified. Speculation has left the global economy more vulnerable to a financial collapse than at any time since 1929. According to the supposedly sophisticated models used by market practitioners, a stock-market crash such as the one in 1929 was likely once in 10,000 years. They said the same, however, about the stock market crash of 1987, the collapse of the hedge fund Long Term Capital Management in 1998 and the subprime crisis. The obvious conclusion is that these models are flawed. The International Monetary Fund (IMF) recently described the crisis that erupted last August as "the largest financial shock since the Great Depression". George Soros, the billionaire speculator who knows a thing or two about financial upsets, says the world is facing the "most serious crisis of our lifetime".
Fortunately for the banks, in Brown's Britain they are seen as a cut above the average benefits scrounger. A month after they visited King, the governor announced a ?50bn "special liquidity scheme" to provide emergency loans to struggling institutions. It was a similar story across the Atlantic. Over the weekend of March 15 and 16, America's central bank, the Federal Reserve Board, launched a rescue for Bear Stearns, the country's fifth-largest investment bank. To smooth a takeover by JP Morgan Chase, the Fed assumed up to $30bn (?15bn) of Bear's more doubtful assets. Were this act of corporate welfare not sufficient, the Fed also announced that it was to provide emergency liquidity to the market. For good measure, it cut interest rates.
What was most extraordinary about all of this was not the bailing-out of City and Wall Street types who had spent decades, like surly teenagers, insisting that they wanted only to be free from the stuffy, paternal state institutions to which they now turned for help. Rather it was the failure of those same institutions to insist on any quid pro quo. In the real world, when a wild-child son or daughter comes home, tail between their legs, their "boring" parents usually require them to clean up their act in return for financial support and use of their old bedroom. Not so in the world of banking and finance. In remarks to the press in March, the British treasury actually ruled out tougher controls.
But then there is plenty of evidence that, in Britain as elsewhere, those in government could see little wrong with the system as it is. Democratically elected governments have, over the past three decades, willingly ceded control of the world economy to a new elite of freebooting super-rich free-market operatives and their colleagues in national and international institutions like the IMF, the World Bank and the World Trade Organisation. These New Olympians, who earn that title by their remoteness from everyday life and their lack of accountability, have gained this control on a prospectus every bit as false as much of the promotional material for the "exotic securities" of which they are so fond. The charge sheet is as follows:
? They promised economic stability - and have delivered chaos and volatility.
? They promised an economic order based on enterprise, thrift and personal effort - and have delivered one based on chronic indebtedness and wild speculation.
? They promised a "transparent" future in which all costs and prices would be clearly laid out - and have delivered a world of bizarre, occult financial knowledge.
? They promised a greatly expanded middle class of property- and share-owning individuals - and have unleashed havoc on professional and white-collar career structures.
But then none of this ought to be surprising. The New Olympians are unconcerned with - in fact, hostile to - job security (other than their own), social tranquillity and the traditional aspiration for both the good life and the quiet life. They roll their eyes when they hear that the Detroit car worker, the Argentinian shopkeeper or the Cornish fisherman is complaining that their way of life is under threat. Like it or lump it, the New Olympians say. That's just the way it has to be. Meanwhile, elected politicians bend over backwards to make life as pleasant as possible for them.
That was vividly illustrated in February when the British government backtracked on its extremely modest proposals to increase taxes on some of the heroes of business and finance. These were the wealthy "non-domiciled residents" who, while living in the UK, claimed their residence to be elsewhere and paid tax only on income shown to have been earned in Britain. In his pre-Budget report in October 2007, the chancellor, Alistair Darling, had proposed a tougher regime for those 20,000-odd non-doms who had been in Britain for seven years or more, a regime that included the payment of an annual ?30,000 flat tax to the exchequer. The backlash from the assembled bankers, ship-owners and other tycoons was predictable, as their political and media apologists lauded their contribution to economic growth and employment and warned of disaster should these philanthropists take themselves elsewhere.
Vince Cable, the Liberal Democrats' treasury spokesman, noted the bizarre nature of the campaign being waged: "We hear stories that a high proportion of non-doms will flee ... It is also claimed that public discussion of non-dom taxation is dangerous because it might frighten these fragile creatures away. This is effective propaganda. We are in the absurd position that some taxpayers on modest incomes have started to feel sorry for the wealthy tax-avoiders."
To be fair, at least 100 Labour MPs failed to accept that global competition means that all workers except CEOs and top directors must accept lower real wages and pensions and poorer working conditions. Nor did they find it convincing that globalisation makes all types of labour more abundant, except chief executives. Brown and Darling, however, seemed to have swallowed the argument. The charge would stay, it was announced, but into the waste-bin went earlier, hated suggestions of making non-doms report on the source of their earnings abroad. Furthermore, there was a categorical statement that the tax changes would not be retrospective.
Growth under the Blair and Brown governments has relied excessively on speculation in two forms: that in the City and that by home-owners. Economically, the legacy is a debt-sodden, lopsided and unequal country in which the pay of those at the top rises at 10 times the rate of those at the bottom. Instead of taking on the City, however, the government has turned its attentions to the workforce - both blue-collar and white-collar - which has to be made ready for the global challenge from China and India by being re-skilled and re-educated and by learning how to be "entrepreneurial". Furthermore, the majority is routinely subjected to ever more illiberal, intrusive and obnoxious interference from state agencies, whether in terms of visual surveillance and the proposed identity card scheme, or in terms of being instructed to change their "attitudes" on a range of subjects.
In the period before the New Olympian takeover, market capitalism proved remarkably good at providing both peace of mind and material advancement. Living standards rose rapidly, financial crises were rare, banking crises rarer still. The New Olympian regime, by contrast, has offered neither faster growth in living standards (for at least 99% of the population) nor peace of mind. The modern era has been characterised by slower growth in average real incomes, higher levels of debt to maintain living standards, greater job insecurity and financial crises that have become more frequent and more far-reaching. The only class that has benefited unambiguously from the new world order has been that of the New Olympians, just as the only creed that has been accepted has been their creed.
The ancient Greeks believed their 12 most important gods and goddesses lived on Mount Olympus. They all had a special significance. Zeus, the lord of the gods, ruled the sky; he was responsible for thunder and lightning. Poseidon, his brother, was the king of the sea; he could ensure that a traveller returned safely home to port. Aphrodite was the goddess of love, Ares the god of war, Apollo the god of the sun and music. Today, there are another dozen governing spirits that hover above and direct our daily lives.
First among these modern gods is globalisation. The ancient Greeks worshipped Zeus; today's cosmopolitan elite pays homage to a world without borders. From the acceptance that economic power had shifted from the nation state to the global market, everything else stems. Governments that seek to meddle with the global market do so at their peril. Rather than tame globalisation, they are supposed to ready their citizens to compete in a world of cut-throat competition. Rather than putting tariffs on foreign steel or banning a foreign company from buying their ports (as the US has done) or seeking to prevent cheap food from undercutting their farmers (as the French have done), they should invest in education, skills and science in the belief that this will "brain-up" their population and create a knowledge economy that will find an upmarket niche in a world awash with cut-price goods. This, of course, is Brown's approach. Whether or not it works is another matter. As the twin engines of the economy struggle, there is little evidence of the knowledge economy riding to the rescue. Indeed, the managerial incompetence that marked the opening of Heathrow Terminal 5 suggests a national shortage of grey matter.
The twin brother of globalisation is communication. The development of powerful digital technology has transformed the way the world works. Had a French bank run into difficulties as a result of financing Napoleon's wars in 1807, for example, it would have taken days for the news to arrive in London, and weeks for it to get to New York. Yet when BNP announced that it was having problems, every dealer in Wall Street and Canary Wharf knew within seconds.
Nation states, despite the impact of globalisation and communication, retain considerable power. They control the flow of imports into their markets; they have controls on the movement of capital; they run industries that are considered to be strategic; they believe that some sectors of the economy - health and education - should be shielded from the full blast of competition. These are, however, impediments to the smoother running of the global market and thus need to be removed. The World Trade Organisation - a supranational body with punitive powers for governments that transgress its rules - started a new round of talks in November 2001 designed to open up markets in agriculture, manufacturing and services. The IMF and the World Bank insist that poor countries receiving financial assistance should abandon state control of their mines, banks and energy companies. In Brussels, the European Commission is dedicated to the removal of the restrictive practices and state subsidies that throw sand into the machinery of the single market. The next three gods are, therefore, liberalisation, privatisation and competition
The sector of the economy to benefit most from these developments was finance. International banks had always tended to have global reach, they could benefit more than any other sector from more rapid communication, it was in their interests to have barriers on capital removed, they picked up hefty fees for organising privatisations, and competition allowed them to wipe out weaker competition. What was not really apparent until last year was how powerful this sixth god - financialisation - had become. In countries like Britain, the expansion of the City of London had been the engine of the economy's growth - the fastest-growing parts of the finance sector expanded at around 7% a year between 1996 and 2006. Meanwhile, manufacturing output stagnated. Financialisation, it was argued by its proponents, was good for a country like Britain. It allowed the country to specialise in what it was good at, made London the hub of global finance, encouraged innovation and - by allowing the market to decide where capital should go - made the economy more stable. Whether this proves to be true in the long term remains to be seen. In the short term, economic growth did not accelerate, productivity did not surge, there was no miracle cure to the balance of payments and only rare glimpses of trickle-down.
Until last year, it was easy to argue that these first six gods were beneficial to the global economy, and at worst, neutral. Privatisation in developing countries, for example, was heralded as a way of preventing corrupt ruling cliques from siphoning off profits into Swiss bank accounts. Globalisation was specialisation on a grand scale: the logical conclusion to the sort of division of labour that Adam Smith and David Ricardo had envisaged 200 years ago. The modern world not only means that we can keep in touch by email with our cousins in Cape Town and buy an agreeable Malbec from an Argentinian vineyard in the foothills of the Andes, but also allows our pension fund to buy shares in an Indian software company. On paper, this life of greater choice, freedom and opportunity sounds splendid. It is certainly preferable that modern communication technology allows Mozart's clarinet concerto to be heard on a CD player in any living room rather than being the exclusive preserve of the court of the Austro-Hungarian emperor in Vienna. In reality, however, the world doesn't work this way - and that's because the remaining six gods have such potentially dangerous properties. These are speculation, recklessness, greed, arrogance, oligarchy and excess
Speculation is not always harmful. Britain's 15 years of uninterrupted economic growth from 1992 onwards was the direct consequence of sterling being forced to leave the European exchange rate mechanism following an attack on the pound orchestrated by Soros. Freed from the need to use excessively high interest rates to defend sterling, growth picked up and unemployment came down. Yet the activities of the big banks and the hedge funds in the first half of 2007 had no noble purpose: far from rectifying a glaring public policy error, they exploited a problem in the private sector - the granting of mortgages in the US to those who couldn't really pay them. Financialisation had created an inverted pyramid. Instead of having a broadly based productive economy supporting a financial sector that had speculation as one of its lucrative but less important activities, a diminished productive sector supported an ever-bigger financial sector that saw speculation as the very reason for its existence.
It would be naive to believe that greed could ever be expunged from financial markets: the pursuit of riches is, and always has been, a factor motivating those who buy and sell shares, bonds, currencies and commodities. Nor is it uncommon to find that the brokers and dealers do rather better out of asset-price bubbles than their customers; as long ago as 1940 the Wall Street veteran Fred Schwed wrote a book called Where Are the Customers' Yachts? Every so often, however, the money lust becomes so pronounced that it crosses the dividing line between cupidity and criminality. Since 2002, a wave of mis-selling has been evident in the US real estate market, with tales of pensioners with only a tiny amount outstanding on their loans tricked into remortgaging their homes at ruinous rates of interest by unscrupulous mortgage brokers.
In January, panellists at the World Economic Forum in Davos were asked how the big banks of North America and Europe had failed to spot the potential losses from subprime lending. The one-word answer from a group that included the chairman of Lloyd's of London and the chief risk officer of the insurance company Swiss Re was "greed". As one participant put it: "Those running the big banks didn't have the first idea what their dealers were up to, but didn't care because the profits were so high."
It goes without saying that those responsible for the speculative bubble of early 2007 could not conceive that one day it would burst. That was where the arrogance kicked in. The super-heroes of the New Olympian order were the brightest and the best of their generation. Their activities were making massive profits, a good chunk of which were being paid out in seven-figure bonuses that kept property markets humming in the Cotswolds and the Hamptons. Could they really be guilty of crass stupidity? Even when cracks did start to appear, the New Olympian class managed to blame everyone but themselves.
Bob Diamond, the American chief executive of Barclays Capital in London, earned ?22m in 2006 and was the sort of person who saw no reason why his money-making activities should be curtailed by red tape. But in August and September 2007, once the going had got tough, Diamond conducted a vigorous campaign against the Bank of England's Mervyn King for failing to provide the same sort of help to banks in the UK as was being provided by the Fed or the European Central Bank, which had stepped in after BNP's problems. As one commentator noted, this state of affairs was tantamount to the police being forced to provide a getaway car to bank robbers for fear that even greater damage would be caused by not doing so.
The response to the market meltdown helps illustrate the final two principles that govern the modern world. One is that, despite the lip-service paid to democracy, western societies are in effect run by moneyed oligarchies, who have as little time for their wage slaves as did the ruling elite of ancient Athens. In February 2008, two weeks after Darling's U-turn on the taxation of non-doms, Brown and his ministers opposed a private member's bill designed to give greater rights in the workplace to agency workers - part-timers who face some of the lowest wages and toughest working conditions of any group.
It is tempting to say that the final god of modern finance is weakness, because it was certainly apparent in late 2007 and early 2008 that the apparent strength of the financial markets was illusory. The happy-go-lucky mood evaporated instantly, with the write-down of losses accompanied by some token sackings of executives and followed by more stringent lending for the real victims of the credit crunch - individuals and businesses forced to pay more when they borrowed. Weakness, though, cannot really be included as a principle of the New Olympians, since nobody willingly seeks to be weak. Rather, our 12th and last principle is excess. It is an axiom of the global order that there is never too much of anything: never too much growth, never too much speculation, never too high a salary, never too many flights, never too many cars, never too much trade. It was for that reason, perhaps, that the financial crisis was accompanied by rising inflation - as demand for oil and food pushed up prices globally - and by almost daily evidence of the impact of global warming. Losses in the financial markets; hardship for pensioners facing dearer heating and food; climate change. There were no prizes for guessing which the New Olympians considered the most pressing issue for policy makers.
The gods promised us paradise if only we would obey and pamper their hero-servants and allow their strange titans and monsters to flourish. We did as they asked, and have placidly swallowed the prescriptions of the lavishly rewarded bankers, central bankers, hedge fund managers and private equity tycoons, while turning a blind eye to the rampaging of the exotic derivatives, the offshore trusts and the toxic financial instruments. Had they delivered, there would, at least, be a debate to be held as to whether the price was too high, in terms of the loss of democratic control and widening social inequality. But they have not. Chronic financial instability and the prospect of, at best, years of sluggish economic activity are the fruits of their guidance.
These gods have failed. It is time to live without them.
? Larry Elliot and Dan Atkinson 2008
? Extracted from The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future by Larry Elliott and Dan Atkinson, to be published by The Bodley Head on Thursday, priced ?12.99. For more information see the authors' blog at thegodsthatfailed.co.uk.

 

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More background on why speculators are forcing up the fuel prices. Pretty soon, commodities may be the only 'real money'.

[SIZE=+4]The Sub Prime Meltdown
Is Tip Of The Iceberg

[/SIZE]The Financial Tsunami has not reached its Climax Credit Default Swaps: Next Phase of an Unravelling Crisis [SIZE=+1]- By F. William Engdahl 6-7-8[/SIZE]

While attention has been focussed on the relatively tiny US "sub- prime" home mortgage default crisis as the center of the current financial and credit crisis impacting the Anglo-Saxon banking world, a far larger problem is now coming into focus. Sub-prime or high-risk Collateralized Mortgage Obligations, CMOs as they are called, are only the tip of a colossal iceberg of dodgy credits which are beginning to go sour. The next crisis is already beginning in the $62 TRILLION market for Credit Default Swaps. You never heard of them? It's time to take a look, then.
The next phase of the unravelling crisis in the US-centered "revolution in finance" is emerging in the market for arcane instruments known as Credit Default Swaps or CDS. Wall Street bankers always have to have a short name for these things.
As I pointed out in detail in my earlier exclusive series, the Financial Tsunami, Parts I-V, the Credit Default Swap was invented a few years ago by a young Cambridge University mathematics graduate, Blythe Masters, hired by J.P. Morgan Chase Bank in New York. The then-fresh university graduate convinced her bosses at Morgan Chase to develop a revolutionary new risk product, the CDS as it soon became known.
A Credit Default Swap is a credit derivative or agreement between two counterparties, in which one makes periodic payments to the other and gets promise of a payoff if a third-party defaults. The first party gets credit protection, a kind of insurance, and is called the "buyer." The second party gives credit protection and is called the "seller". The third party, the one that might go bankrupt or default, is known as the "reference entity." CDSs became staggeringly popular as credit risks exploded during the last seven years in the United States. Banks argued that with CDS they could spread risk around the globe.
Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against a default on a debt. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can also be used for speculative purposes.
Warren Buffett once described derivatives bought speculatively as "financial weapons of mass destruction". In his Berkshire Hathaway annual report to shareholders he said "Unless derivatives contracts are collateralized or guaranteed, their ultimate value depends on the creditworthiness of the counterparties. In the meantime, though, before a contract is settled, the counterparties record profits and losses - often huge in amount - in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." A typical CDO is for five years term.
Like many exotic financial products which are extremely complex and profitable in times of easy credit, when markets reverse, as has been the case since August 2007, in addition to spreading risk, credit derivatives, in this case, also amplify risk considerably.
Now the other shoe is about to drop in the $62 trillion CDS market due to rising junk bond defaults by US corporations as the recession deepens. That market has long been a disaster in the making. An estimated $1.2 trillion could be at risk of the nominal $62 trillion in CDOs outstanding, making it far larger than the sub- prime market.
No Regulation
A chain reaction of failures in the CDS market could trigger the next global financial crisis. The market is entirely unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb. The US Federal Reserve under the ultra- permissive chairman, Alan Greenspan and the US Government's financial regulators allowed the CDS market to develop entirely without any supervision. Greenspan repeatedly testified to skeptical Congressmen that banks are better risk regulators than government bureaucrats.
The Fed bailout of Bear Stearns on March 17 was motivated, in part, by a desire to keep the unknown risks of that bank's Credit Default Swaps from setting off a global chain reaction that might have brought the entire financial system down. The Fed's fear was that because they didn't adequately monitor counterparty risk in credit-default swaps, they had no idea what might happen. Thank Alan Greenspan for that.
Those counterparties include J.P. Morgan Chase, the largest seller and buyer of CDSs.
The Fed only has supervision to regulated bank CDS exposures, but not that of investment banks or hedge funds, both of which are significant CDS issuers. Hedge funds, for instance, are estimated to have written 31% in CDS protection.
The credit-default-swap market has been mainly untested until now. The default rate in January 2002, when the swap market was valued at $1.5 trillion, was 10.7 percent, according to Moody's Investors Service. But Fitch Ratings reported in July 2007 that 40 percent of CDS protection sold worldwide was on companies or securities that are rated below investment grade, up from 8 percent in 2002.
A surge in corporate defaults will now leave swap buyers trying to collect hundreds of billions of dollars from their counterparties. This will to complicate the financial crisis, triggering numerous disputes and lawsuits, as buyers battle sellers over the technical definition of default - this requires proving which bond or loan holders weren't paid - and the amount of payments due. Some fear that could in turn freeze up the financial system.
Experts inside the CDS market believe now that the crisis will likely start with hedge funds that will be unable to pay banks for contracts tied to at least $150 billion in defaults. Banks will try to pre-empt this default disaster by demanding hedge funds put up more collateral for potential losses. That will not work as many of the funds won't have the cash to meet the banks' demands for more collateral.
Sellers of protection aren't required by law to set aside reserves in the CDS market. While banks ask protection sellers to put up some money when making the trade, there are no industry standards. It would be the equivalent of a licensed insurance company selling insurance protection against hurricane damage with no reserves against potential claims.
Basle BIS worried
The Basle Bank for International Settlements, the supervisory organization of the world's major central banks is alarmed at the dangers. The Joint Forum of the Basel Committee on Banking Supervision, an international group of banking, insurance and securities regulators, wrote in April that the trillions of dollars in swaps traded by hedge funds pose a threat to financial markets around the world.
"It is difficult to develop a clear picture of which institutions are the ultimate holders of some of the credit risk transferred,'' the report said. "It can be difficult even to quantify the amount of risk that has been transferred.''
Counterparty risk can become complicated in a hurry. In a typical CDS deal, a hedge fund will sell protection to a bank, which will then resell the same protection to another bank, and such dealing will continue, sometimes in a circle. That has created a huge concentration of risk. As one leading derivatives trader expressed the process, "The risk keeps spinning around and around in this daisy chain like a vortex. There are only six to 10 dealers who sit in the middle of all this. I don't think the regulators have the information that they need to work that out.''
Traders, and even the banks that serve as dealers, don't always know exactly what is covered by a credit-default-swap contract. There are numerous types of CDSs, some far more complex than others. More than half of all CDSs cover indexes of companies and debt securities, such as asset-backed securities, the Basel committee says. The rest include coverage of a single company's debt or collateralized debt obligations...
Banks usually send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, as there is no regulated exchange to process the market or to insure against loss. To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails.
Banks want Secrecy
Banks have a vested interest in keeping the swaps market opaque, because as dealers, the banks have a high volume of transactions, giving them an edge over other buyers and sellers. Since customers don't necessarily know where the market is, you can charge them much wider profit margins.
Banks try to balance the protection they've sold with credit- default swaps they purchase from others, either on the same companies or indexes. They can also create synthetic CDOs, which are packages of credit-default swaps the banks sell to investors to get themselves protection.
The idea for the banks is to make a profit on each trade and avoid taking on the swap's risk. As one CDO dealer puts it, "Dealers are just like bookies. Bookies don't want to bet on games. Bookies just want to balance their books. That's why they're called bookies."
Now as the economy contracts and bankruptcies spread across the United States and beyond, there's a high probability that many who bought swap protection will wind up in court trying to get their payouts. If things are collapsing left and right, people will use any trick they can.
Last year, the Chicago Mercantile Exchange set up a federally regulated, exchange-based market to trade CDSs. So far, it hasn't worked. It's been boycotted by banks, which prefer to continue their trading privately.
Global Research Associate F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (PlutoPress), and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation. (Global Research, available at www.globalresearch.ca). He may be reached at [email protected].

 

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Oil Prices - Market, Manipulative Forces At Work -By Joel Skousen
​

[SIZE=+1] Editor - World Affairs Brief

6-13-8[/SIZE] The price of oil and gasoline continues to rocket upward even as demand for gasoline wanes. Miles driven by American motorists have actually dropped over 4% compared to last year. High gasoline prices are having their effect and there is still a lot more cost cutting to come as people scramble to buy more fuel efficient vehicles. Overall, demand for oil is increasing, but the rate of increase is slowing, even in China and India where the masses are finally now beginning to have access to personal vehicles. Sadly, the budding personal car movement in third world countries is about to be snuffed out as rising prices threaten to dampen demand for all but the wealthy. There are definitely some pernicious, non free-market forces at work here as the demand curve for oil is nowhere near as steep as the rising price of oil. This week I'll help you analyze what is happening.

According to CNN Money, "The U.S. Department of Transportation said Monday that Americans drove 11 billion miles less in March 2008 than a year earlier, marking the first time that estimated March travel on public roads fell since 1979. That 4.3% decline is the sharpest year-on-year drop for any month in the history of the agency's reporting, which dates back to 1942.

"According to the Energy Information Administration (EIA), a unit of the U.S. Department of Energy, gasoline demand has fallen 0.6% so far in 2008. The trend began in October 2007, and gas consumption has trailed year-ago levels in every month since, except for a very slight bump up in November. As a result, the EIA is forecasting the first year-over-year decline in U.S. gasoline demand since 1991."

So, if demand is falling, why are prices still rising almost 10 cents a week, and in such a coordinated manner? As I explained a few weeks ago, most drivers are not in a position to change their commuting habits. It is locked into our suburban lifestyle. The manipulators who are driving prices upward are doing so knowing that buyers have little choice but to keep buying at almost any price. We are hostages to our work and living habits, which we don't really want to change. Even though urban living close to work has it's advantages, it is a death trap during major crises when urban services fail and panic ensues as people have no fallback position for personal self-sufficiency.

For almost 10-20% of the US population, that limit of fuel affordability is fast approaching or is already past. I fully expect to see a rash of credit card defaults in the next two to three months. Everyone is putting their gasoline purchases on their credit cards and they will not be able to pay these bills at the end of the month. Their revolving credit will keep rolling over at 18-21% interest rates until they cannot make the payments. I estimate that most commuters are having to add $150 to $200 a month to their accounts. That's on top of their normal $400-500/month they are already paying for fuel. How long can this last?

Gasoline purchases are eating into the disposable income of even the middle class. The retail economy is starting to feel the pinch as buyers get more scarce and have less to spend. The only exception seems to be teens who are still spending with abandon on their parents' dime. Their time will come too. One older friend mentioned that it felt like the 1920s to him--with people still living "high on the hog," but just a few years away from having to make radical changes in lifestyle that will last for decades and ultimately end in another world war. He may be right. So, who sets the prices of oil? Yes, sellers are demanding huge premiums for oil, using "peak oil" as an excuse. Yes, peak oil does exist as far as existing oil fields are concerned, but as I have also written elsewhere, there are huge deposits here in America that the government, in collusion with environmentalists, is keeping off the markets. That's one side of the manipulation. Even though it is a seller's market, both sellers and users set the price--and there is yet another demand factor that is part of the manipulation: speculation. Almost 70 percent of those who bid on oil contracts are deliberately trying to drive it upward in a mass speculative move to use otherwise falling dollars to gain a profit. For this we have our own government to blame for debasing our currency.

Oil prices are more affected by the futures market than direct purchases by consumers based on current needs. Futures markets were developed a long time ago as a way to hedge against shortages and price volatility of commodities like oil. Users whose entire business model depends on a steady supply of oil such as refiners and manufacturers who turn oil into byproducts like plastics, tires, and hundreds of other products, cannot afford to run short. They buy futures contracts to ensure that supply. Southwest airlines, for example, has done better than other airlines precisely because of the prudent use of futures contracts giving them a cheaper supply of aviation fuel.

It used to be that only oil companies and end-users bid in these markets, but now fully 70% of the market is dominated by speculators who deal anonymously through special confidentiality rules created by the Commodity Futures Trading Commission (CFTC). We are also dealing with a group of "index traders" like pension funds, university endowments and other big institutional investors who look for markets that are going in one-direction for long periods of time. They move in with long positions to capitalize on the proposition that a "rising tide lifts all boats."

According to the Washington Post, "Hedge funds and big Wall Street banks are taking advantage of loopholes in federal trading limits to buy massive amounts of oil contracts, according to a growing number of lawmakers and prominent investors, who blame the practice for helping to push oil prices to record highs. The federal agency that oversees oil trading, the Commodity Futures Trading Commission, has exempted these firms from rules that limit speculative buying, a prerogative traditionally reserved for airlines and trucking companies that need to lock in future fuel costs [This was not accidental. The CFTC is staffed by people hand picked by Wall Street insider brokerage firms--the same ones that have insider dealings with the secretive US plunge protection team].

"The CFTC has also waived regulations over the past decade on U.S. investors who trade commodities on some overseas markets, freeing those investors to accumulate large quantities of the future oil supply by making purchases on lightly regulated foreign exchanges. Over the past five years, investors have become such a force on commodity markets that their appetite for oil contracts has been equal to China's increase in demand over the same period, said Michael Masters, a hedge fund manager who testified before Congress on the subject last month. The commodity markets, he added, were never intended for such large financial players." One of those lightly regulated foreign exchanges operates right out of the US in Atlanta, Ga. According to Kevin G. Hall of McClatchy News, "Much of Tuesday's [Congressional] discussion focused on the unregulated oil market in London, the Intercontinental Exchange, or ICE, which is an electronic trading platform that is actually headquartered in Atlanta. About 30 percent of global crude oil trading happens there, and despite U.S. ownership, the CFTC has chosen to let England regulate that market. England's regulatory scheme is far weaker, and critics contend that this so-called 'dark market' allows prices to be driven up."

The key leveraging factor for driving up futures prices is market instability. Futures markets are based on uncertainty. When uncertainty goes up, so does the price one is willing to bid to ensure a supply of fuel in future contracts. Prices can be bid up to many times their value, especially if you have countries and speculators entering the markets with large caches of dollars. Add to this the ability to buy on tiny margins of 2-3% created by the CFTC in late 1999 and the speculators can sway the markets in a massive way.

How is the rise in oil prices related to the rise in money? How can inflation of 3% explain a 7 fold increase in the price of oil since 2001? It can't--even if you take into account the government's purposeful manipulation of the CPI downward to hide the true inflation rate, approaching 10% per annum. There is a difference between price inflation and monetary inflation. Price inflation lags monetary inflation. Also, in past years when the world economy was loading up on dollars, our government was able to export inflation abroad without affecting domestic prices much at all. Now that the world is awash in dollars, its value is falling fast and inflation is hitting home with a vengeance. The more world-wide holders of dollars seek to unload excess dollars by buying American products, property, or oil futures, the more we will see growing price inflation. But the ultimate cause is government dilution of the dollar by money and credit creation. Blame government for rising prices--not the free-market which is only responding to a devalued monetary unit.

In addition, we are having to deal with the speculator's future expectations of monetary inflation. Speculators don't really believe all the calming assurances of the Treasury Department and Federal Reserve relative to the current debt crisis. They know that the US will keep pumping billions into the faltering economy and that spells a weak dollar-so they are betting against it.

As Paul Craig Roberts noted, "By pumping out money in an effort to forestall recession and paper over balance sheet problems, the Federal Reserve is driving up commodity and food prices in general. Yet American real incomes are not growing. Even without jobs offshoring, US economic policy has put the bulk of the population on a path to lower living standards."

We have thousands of big dollar speculators moving into the oil market and creating another bubble there as they exit the falling debt bubble. They may even be using bailout money from the fed to do this. They are joined by agents of China, Europe and Japan who are also looking for places to dump dollars fast before it devalues itself even more. There's a multiplier effect working here as well.

However, this oil bubble can't go on forever. The speculative portion will burst at some point, even if real demand is still increasing. Like all bubbles, it will someday leave a some of the speculators holding the bag of high priced contracts and a temporary oil glut. But before that hits, you can bet the insider traders will pull out at the high point in the market. Indeed, if there is coordinated speculation by insider traders, they can even precipitate the fall by exiting the market. Sadly, even with a significant correction in the price of crude, I can't see gasoline prices retreating more than 10-20%. People get used to high prices, and will think they are getting a "bargain" if gasoline drops back down 50 cents or so.

There are other manipulation factors as well, especially in gasoline prices. The major oil companies have purposely kept refining capacity low so they could eventually manipulate the price of fuel. Now that demand is dropping, rather than keeping the output high so that prices can come down, they are cutting refinery output. Refining capacity is down in the 80-85 percentile level, compared to 95% plus just last year. Refiners have also stopped importing gasoline so as to keep supplies tight. There is a surplus of gasoline refining capacity in other countries--which are switching over to diesel. But, the US isn't buying this excess gasoline.

I don't think we can expect anything but verbal outrage from Congressional investigators--if their dismal performance at a hearing before big oil company executives is any example. Despite all their blustering on behalf of consumers, this week Senate Republicans killed legislation that would have eliminated billions of dollars in federal subsidies for the oil and gas industry. Incredible! Few Americans realize that despite record profits the oil companies are still receiving subsidies which Congress refuses to cut. Sure, the bills contained all kinds of unwise incentives to force companies to invest in "renewable fuels" like ethanol--perhaps the worst of the interventions in the markets we have seen to date.

Ethanol production is gobbling up over 30% of corn crops in the US and depleting food supplies to dangerous levels--and it takes more than a gallon of fuel to produce a gallon of ethanol. Other food products like wheat are also rising in response to the corn shortage. Farmers are still clamoring for their subsidies even as crop prices rise dramatically. Of course, the price they are paying in increased diesel fuel is probably offsetting those subsidies substantially.

As Kevin Hall reported, "The announcement [of a Congressional investigation] came as a special advisory committee went before the Commodity Futures Trading Commission to discuss ways to make the oil markets more transparent. Increasing reporting requirements and other transparency measures would reduce concerns that oil traders are manipulating the trading of contracts for future delivery of oil, called futures, in ways that drive up oil prices.

"Critics dismissed the task force as a public relations move that won't lower prices. 'That's a great way to appear to be doing something when you are not,' said Michael Greenberger, a University of Maryland law professor who was the CFTC's director of trading during the Clinton administration."

More telling of the control insiders will exercise in this so-called investigation is in who will make up the committee. "The new task force will include representatives from the Federal Reserve, the Treasury Department, the Securities and Exchange Commission and the Departments of Energy and Agriculture." The foxes are guarding the hen house.

In summary, we are dealing with market forces, speculation, and outright manipulation in the oil markets, and I suspect government is part of it--looking the other way. Bill Chilton, one of the few honest CFTC commissioners, also suspects something is wrong as well when he says that "The leaders of Saudi Arabia have said that today's high prices aren't justified by market fundamentals--and I think the Saudis know a little bit about the oil markets." So do I. But they are not free to tell all.

The Saudis and other Arab leaders were allowed to stay on the throne after expropriating and nationalizing Anglo-American oil interests by promising to always keep the West amply supplied, and to do their financial dealings with American and British controlled banks in dollars. That is one of the reasons why Saddam still had 50 billion dollars in US banks when the US invaded. That money is still being held hostage to force the current Iraqi government to bend to US wishes in the region.
World Affairs Brief - Commentary and Insights on a Troubled World.

Copyright Joel Skousen. Partial quotations with attribution permitted. Cite source as Joel Skousen's World Affairs Brief http://www.worldaffairsbrief.com

 

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Why Oil Prices Are So High?

A Weak Dollar, Bad Fed Policies and Hedge Fund Speculators - By Paul Craig Roberts - 6-14-8​

How to explain the oil price? Why is it so high? Are we running out? Are supplies disrupted, or is the high price a reflection of oil company greed or OPEC greed. Are Chavez and the Saudis conspiring against us?

In my opinion, the two biggest factors in oil's high price are the weakness in the US dollar's exchange value and the liquidity that the Federal Reserve is pumping out.

The dollar is weak because of large trade and budget deficits, the closing of which is beyond American political will. As abuse wears out the US dollar's reserve currency role, sellers demand more dollars as a hedge against its declining exchange value and ultimate loss of reserve currency status.

In an effort to forestall a serious recession and further crises in derivative instruments, the Federal Reserve is pouring out liquidity that is financing speculation in oil futures contracts. Hedge funds and investment banks are restoring their impaired capital structures with profits made by speculating in highly leveraged oil future contracts, just as real estate speculators flipping contracts pushed up home prices. The oil futures bubble, too, will pop, hopefully before new derivatives are created on the basis of high oil prices.

There are other factors affecting the price of oil. The prospect of an Israeli/US attack on Iran has increased current demand in order to build stocks against disruption. No one knows the consequence of such an ill-conceived act of aggression, and the uncertainty pushes up the price of oil as the entire Middle East could be engulfed in conflagration. However, storage facilities are limited, and the impact on price of larger inventories has a limit.<http://www.amazon.com/exec/obidos/ASIN/0307396061/counterpunchmaga>


Saudi Oil Minister Ali al-Naimi recently stated, "There is no justification for the current rise in prices." What the minister means is that there are no shortages or supply disruptions. He means no real reasons as distinct from speculative or psychological reasons.

The run up in oil price coincides with a period of heightened US and Israeli military aggression in the Middle East. However, the biggest jump has been in the last 18 months.

When Bush invaded Iraq in 2003, the average price of oil that year was about $27 per barrel, or about $31 in inflation adjusted 2007 dollars. The price rose another $10 in 2004 to an average annual price of $42 (in 2007 dollars), another $12 in 2005, $7 in 2006, and $4 in 2007 to $65. But in the last few months the price has more than doubled to about $135. It is difficult to explain a $70 jump in price in terms other than speculation.

Oil prices have been high in the past. Until 2008, the record monthly oil price was $104 in December 1979 (measured in December 2007 dollars). As recently as 1998 the real price of oil was lower than in 1946 when the nominal price of oil was $1.63 per barrel. During the Bush regime, the price of oil in 2007 dollars has risen from $27 to approximately $135.

Possibly, the rise in the oil price was held down, prior to the recent jump, by expectations that Democrats would eventually end the conflict and restrain Israel in the interest of Middle East peace and justice for the Palestinians.

Now that Obama has pledged allegiance to AIPAC and adopted Bush's position toward Iran, the high oil price could be a forecast that US/Israeli policy is likely to result in substantial supply disruptions. Still, the recent Israeli statements that an attack on Iran was "inevitable" only jumped the oil price about $8.

Perhaps more difficult to understand than the high price of oil are the low US long-term interest rates. US interest rates are actually below the rate of inflation, to say nothing of the imperiled exchange value of the dollar. Economists who assume rational participants in rational markets cannot explain why lenders would indefinitely accept interest rates below the rate of inflation.

Of course, Americans don't get real inflation numbers from their government and have not since the Consumer Price Index was rigged during the Clinton administration to hold down Social Security payments by denying retirees their full cost of living adjustments. According to statistician John Williams, using the pre-Clinton era measure of the CPI produces a current CPI of about 7.5%.

Understating inflation makes real GDP growth appear higher. If inflation were properly measured, the US has probably experienced no real GDP growth in the 21st century.

Williams reports that for decades political administrations have fiddled with the inflation and employment numbers to make themselves look slightly better. The cumulative effect has been to deprive these measurements of veracity. If I understand Williams, today both inflation and unemployment rates, as originally measured, are around 12 per cent.

By pumping out money in an effort to forestall recession and paper over balance sheet problems, the Federal Reserve is driving up commodity and food prices in general. Yet American real incomes are not growing. Even without jobs offshoring, US economic policy has put the bulk of the population on a path to lower living standards.

The crisis that looms for the US is the loss of world currency role. Once the dollar loses that role, the US government will not be able to finance its operations by borrowing abroad, and foreigners will cease to finance the massive US trade deficit. This crisis will eliminate the US as a world power.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of <http://www.amazon.com/exec/obidos/ASIN/0307396061/counterpunchmaga>The Tyranny of Good Intentions.He can be reached at: <mailto[email protected]>[email protected]

 

[hederstedt]

$4.05 a gallon up here now, with $4.76 per gallon for diesel. In the Villages up here its over $8 per gal for unleaded in areas.

If you get it for 8 USD a gallon here in Sweden its cheap. Its almost up to 8.80 / gallon.

But I dont complain, there is something f**ked up with the weather - I dont need to read long reports and arguments to realize that. I just have to compare the weather now with the weather 30 years ago.
And even, even if thats a coincidence, oil will run out in my lifetime.

Lucky me, I know how to make alcohol, and lucky me, alcohole can take higher compression and make my max faster. unk:

 

[Ibanez666]

Here in The Netherlands it's over 9 dollar a gallon and around 70% of that price are taxes!