Economic Warfare

[Brian Hanley]

Seems to me the best economic warfare against us is using ourselves as the instrumentality. Which is, I think a nice to have as far as the Kremlin boyz are thinking. I don't think there's much Iran can do to us. We have been putting ourselves in debt for these wars. That's my largest concern about them. World sliding Euro-ward.

The idea China is going to side with Iran is not credible to me on its face. China is in a deadly embrace with us economically. Trade ties and they hold a huge amount of our debt. There isn't room enough in the world for that amount of debt to be dumped. That's one of the benefits of being the biggest game in town with everyone else bit players.

http://www.federalbudget.com/
http://www.marktaw.com/culture_and_m...ionalDebt.html

That combined with demographic trends in the USA is worrisome because boomers aren't going to be saving too much longer.
http://www.census.gov/prod/2001pubs/c2kbr01-12.pdf Scroll down to the age demographics and then slide the graph forward 7 years to the present.

But, overall trends in the world have been looking up for a long time with very few blips.
http://www.gapminder.org/

[Watcher In The Middle]

Originally posted by Brian Hanley:

The idea China is going to side with Iran is not credible to me on its face. China is in a deadly embrace with us economically. Trade ties and they hold a huge amount of our debt. There isn't room enough in the world for that amount of debt to be dumped. That's one of the benefits of being the biggest game in town with everyone else bit players.

The PRC has their own sets of issues that make any idea of a mass dump of their accumulated economic assets rather unlikely. There's been sustained coverage by the WSJ over a number of these issues, and China has some rather serious issues that they are trying to manage.

First off, Iran likes $100 a Bbl. oil. But the PRC has real problems with $100 Bbl. oil - even bigger problems that we & the EU have. China subsidizes fuel, to the point where the WSJ recently noted that per gal. diesel prices in China run about $2.40 a gal., vrs. at least $3.15 a gal. here in the US, and much higher in the EU. And it appears they subsidize all types of fuel. Plus they have to buy most of their oil in dollars, which is why they need that vast (One Trillion+) liquid pool of dollar denominated assets.

Now, Iran has made noises about only accepting the Euro for oil, but this is even less helpful not just for the EU (raises their currency value even higher, which is literally the last thing they want right now - makes their exports even more expensive), but also for China, that just kills them, because it's a triple hit - (a) Buy more imported oil, (b) At increased subsidy costs for each liter sold, and (c) they have to spend cheap dollars to buy more expensive Euros to pay for each Bbl. of oil.

And there's a real wild card out there that only the financial types are seemingly paying attention to - Most people don't realize that over the past several years, China's domestic stock market (which outsiders cannot invest in) has had more IPO (Initial Public Offering) activity than anywhere else in the world, including in the US. The Chinese stock market currently has an uncanny resemblance to the 1999-2000 Internet/IPO market which melted down into what became known as the "Dot.Com Bust". If their internal stock market blows up, it's going to be interesting times indeed.

Hard to believe, but that trillion dollars piggy bank can shrink pretty rapidly.

[goesh]

Well, I bought gold some time ago, that's all I know. The housing slump I think took everyone by surprise and the whole world has known about us running in the red for a long time but Iran has huge energy contracts with China. Israel is the wild card from China's point of view and with the falling DOW, they have to be extremely worried on both counts. The world's economy can tolerate an attack on Iran better than it can a nuclear armed Iran IMO. I think even Boscoe (FM) would agree with that.

[bismark17]

Tonight's evening news had an interesting story on how Canadians are sweeping down into Washington to take advantage of our sliding dollar and the State Patrol is expecting huge traffic issues due to the increases from them during the upcoming Christmas Shopping...(or should I say "Holiday Shopping?")...

I must say these are interesting times to be around. I'm not a FOREX or arbitrage guy but I think China has so much tied up in our dollar that any moves against it would cause them devasting losses. It appears to be a bit of a catch-22 since they hold so much of our debt. If we do get into it with them I am more concerned with their Information Warfare capabilities in the cyber/SCADA realms. That is my cents worth....

[Norfolk]

Tonight's evening news had an interesting story on how Canadians are sweeping down into Washington to take advantage of our sliding dollar and the State Patrol is expecting huge traffic issues due to the increases from them during the upcoming Christmas Shopping...(or should I say "Holiday Shopping?")...

I must say these are interesting times to be around. I'm not a FOREX or arbitrage guy but I think China has so much tied up in our dollar that any moves against it would cause them devasting losses. It appears to be a bit of a catch-22 since they hold so much of our debt. If we do get into it with them I am more concerned with their Information Warfare capabilities in the cyber/SCADA realms. That is my cents worth....

Agreed bismark. China in many ways is so dependent upon US economic growth and stability that disrupting the US economy is like cutting off one (at least) of their own limbs. Pretty soon, US pressure on China to allow the Yuan to reach its true value may be quite unnecessary. China has no interest in, and a lot to lose from, continued US dollar devaluation.

For that matter Iran can have little impact through straight economic means upon the US. Only blocking the flow of oil (direct military means) could seriously affect the US economy. And Iran has no economic interest (to say the least) in doing that.

Them Canajuns, though, I tell ya', I'd be keepin' a close eye on them. They think they can just blend in and not be spotted while they implement their nefarious schemes of economic subversion of the US...well, I say take out all the Molson and Labatt breweries, and proceed to drown them in Miller and Bud - I drink Guinness by the way, so I should still be okay.

[Firestaller]

Well, I bought gold some time ago, that's all I know. The housing slump I think took everyone by surprise and the whole world has known about us running in the red for a long time but Iran has huge energy contracts with China. Israel is the wild card from China's point of view and with the falling DOW, they have to be extremely worried on both counts. The world's economy can tolerate an attack on Iran better than it can a nuclear armed Iran IMO. I think even Boscoe (FM) would agree with that.

The housing slump and the inbalanced trade due to easy access to credit by US consumers (in which money was created to stimulate consumption and the housing industry rather than creating and/or stimulating industry) was predicted by many respected financial players years ago (Warren Buffet warned about the housing bubble, dollar decline and trade deficit as early as 2005 link.



As far as Iran, neither China, Russia ... or Europe for that matter wants the US to have hegenomy over the top 3 oil producing states: Saudi Arabia, Iraq and Iran if they are to go along with US position on Iran. Strategically, China and Russia want the US to guarantee that they have a stake in the production of oil in both Iraq and Iran. China would seem to automatically get action in all these countries as leverage to US influence (and China has to be perceived by these states to be able to stand up against any US interests that runs counter to Iran, Iraq or Suadi interests) so China doesn't really feel the need to submit to US pressure.


But neither China, Russia, the EU or the US would want any of these major oil producing states to have too much power .... and it's not in the interest of any of these countries to have a nuclear armed oil producing state (Russia's only source of power now is oil and it's nuclear arsenal and countries are already nervous about that.)

[bourbon]

Political crack opens at rare OPEC meeting, By Jad Mouawad. International Herald Tribune, November 18, 2007.

While the Saudis wanted to reassure the world that OPEC is a reliable oil supplier, the leaders of Venezuela and Iran, who have traditionally been more hawkish members of the oil cartel, sought to score political points, saying prices were not too high and criticizing the decline of the dollar.

The polished meeting was a study in contrast that underscored OPEC's schizophrenic nature. It is too early to say whether it signaled a rift in the exceptional consensus that has sustained OPEC's success in recent years, or whether it was merely an example of conference theatrics by countries at odds with the American government.

[bourbon]

Seven Questions: The Price of Fear, Foreign Policy Online, November 2007

Something funny has happened to the price of oil: It no longer reflects reality. The reason, according to Fadel Gheit, one of Wall Street's top energy analysts, is that “financial players have seized control of the oil markets”. Find out how they did it in this week’s Seven Questions.

Imho, what he is saying is pretty shocking and important.
Bold emphasis is mine.

FP: So what about derivatives trading—

FG: That’s exactly what I’m focusing on. I truly believe that major investment banks and a large number of very high-risk-taking financial players have seized control of the oil markets, especially in the last six months. During that time, oil prices moved in one direction and market fundamentals really moved sideways or even lowered. Demand has slowed down significantly. We have seen all kinds of indications that we are reaching a breaking point here. We’ve seen what happened to gasoline margins on the West Coast; they’ve dropped to an almost 18-year low. All this is an indication that something is wrong with the system, that supply and demand fundamentals do not justify the current price. But if the current price is based on speculation, there is no limit to how high oil prices can go. Basically, as long as there is somebody willing to bid higher, the price of the commodity will move higher.

FP: So, in other words, our own fear is driving up the price of oil?

FG: Well, if you are a commodity trader, you want to do your best to push the commodity price in the direction that you forecast. And obviously, when you have a lot of financial players making bets on much higher oil prices, they would like to see a self-fulfilling prophecy. They want to see oil prices reach the level that they put the bet on. So, they can spread rumors. And if the glass is half empty or half full, they will say it’s empty.

To my knowledge, there is no oil shortage. Any willing buyers will not have a problem finding oil. Global inventories are over 4 billion barrels. In simple math, that is the equivalent of all the oil produced in the Middle East for six months. So, the fear premium, in my view, is totally exaggerated; it’s not justified by logic or market fundamentals. Again, it’s very difficult to quantify fear. But that is the psychological factor, in my view, that is bringing oil prices to these unprecedented levels. For instance, I don’t believe that Iran is going to cut oil exports, because Iran needs the revenue more than the world needs Iran’s oil. We have to be logical in assessing the risk. And obviously, financial players want to exaggerate the situation so that the risk premium increases and they make more money.

The concept of "super-empowered" individuals and groups is a little beyond me. But as I am learning more about futures markets and oil speculation, it is becoming increasingly clear to me that there are powerful incentives for instability, that are shared by a myriad of interests.

[kehenry1]

I was thinking about the above post when I was reading about these instances:

Venezuela calls for energy alliance

Chavez Declares End to the rule of the US Dollar

Americans to spend less over holidays over fuel price concerns

My first thoughts were that oil speculators are helping these entities commit economic war on the US. I try not to be paranoid or reactionary, but I also thought that the idea that the oil moguls were behind the wars in Iraq and Afghanistan was too funny by far when, in fact, peace time allowed them to drill and search at a much lower cost. Thus, my somewhat paranoid, speculative self wonders if it isn't more likely that speculating oil costs beyond their reality is a way for "empowered individuals" to have their say on US policy? Seems much more likely and cost effective than someone dropping 100k into a campaign and demanding war that interrupts oil exploration and extraction.

Just a thought.

Of course, it could be simply the reaction of the market to continued "economic warfare" from these outside nations coupled with our own internal economic issues. I don't want to get beyond any possible realities here. In which case, oil speculation is simply a symptom and an unwitting assistant to the cause.

Finally, isn't it interesting that our enemies have learned economic warfare from our Cold War policies? Then again, history shows that our enemies have always coupled economic warfare with actual combat. counterfeit currency, interrupted resources, etc, etc, etc...

[Ski]

Oil specualtion has been a main driver of the price of crude for some time now, but I don't see any maliciousness behind them other than trying to squeeze as many greenbacks out of the market as possible. That leads to the price flucuating higher when there's a storm brewing in the Gulf, or when a small pipeline is severed in Yemen, or the rebels in Nigeria attack a refinery.

Capitalism at its finest.

But I do believe the intent could be there if some smart trader wanted to screw with the West.

Finally, I agree with those who say economic warfare has been around since the beginning of mankind...

[bourbon]

My first thoughts were that oil speculators are helping these entities commit economic war on the US. I try not to be paranoid or reactionary, but I also thought that the idea that the oil moguls were behind the wars in Iraq and Afghanistan was too funny by far when, in fact, peace time allowed them to drill and search at a much lower cost.

When the going gets paranoid and reactionary, the paranoid and reactionary go pro. When paranoid and reactionary go pro, they go LaRouche:

Bankrupt Speculators With $25 Per Barrel Oil, by Richard Freeman and John Hoefle. Executive Intelligence Review, June 11, 2004.

If you can handle the inevitable crap that comes with reading anything put out by the ‘Rouchies*, then I think this is a pretty good article. I think it illustrates some of the market dynamics at play.

Rather than dig up some international conspiracy to jack up oil prices, there may be a simpler answer here. Oil is, I believe, traded in US dollars. The US dollar is at an all time low in the international currency market. If I have to buy a lot of my stuff in Euros or Yen, then don't I need to sell my oil for a whole lot more $$ these days? Or am I just being simple minded?

"Simple minded" is harsh. But you write off the role of oil speculators in setting the price and assign the role to producer nation's. Oil producing nations ability to influence price is derived from their ability to control production (supply). OPEC is a cartel of producers who seek to pool their influence. As a result of embargoes in '70's, petroleum exchanges were established to undercut OPEC power by abandoning fixed long-term bilateral trades for more fluid "spot" trades. In the Foreign Policy interview with Gheit, he is saying that the supply (where the producer nations price influence lay), and the demand does not explain the high prices. Rather, it is the result of speculators.

You do bring up an interesting subject about petrodollars** Here is some food for thought:

From Petrodollars to Petroeuros: Are the Dollar's Days as an International Reserve Currency Drawing to an End? by Robert Looney. Strategic Insights, Volume II, Issue 11 (November 2003)

Are 'Petroeuros' the future?, Oxford Analytica



*Good article about the LaRouche bunch in the latest Washington Monthly
** I've exercised to ghost of Howard Beale here, and am obligated to post this