Economic Warfare

[Steve Blair]

when the cost of a gallon of gas exceeds the hourly minimum wage?

Considering that the starting wage at the local fast food joints here is higher than the starting pay for many non-faculty university staff members (and no...I'm not kidding), we'll be walking before the Taco Bell crew does....

[bourbon]

Seven Questions: The New World Energy Order, Foreign Policy Online, June 2008

Why are oil prices soaring so high, and will they ever return to Earth? Fatih Birol, chief economist at the International Energy Agency in Paris, explains why peak oil is real, why biofuels are indispensable, and how China determines what you pay at the pump.

How Iran Has Bush Over a Barrel, By Robert Baer. Time Online, Jun. 11, 2008.

In the worst case scenario, seventeen million barrels of oil would come off world markets.

Plan Would Lift Saudi Oil Output, By JAD MOUAWAD. The New York Times, June 14, 2008.

The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest ever. The move was seen as a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices.....

Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.

The Mouawad article is very interesting news. See also Peter Maass' famous NYT magazine article The Breaking Point: Saudi Arabia, soaring demand and the theory of peak oil.

[bourbon]

Another possible scenario is that the incredibly high prices in commodities are being driven by speculators, and we are witnessing a bubble that is pending to pop. Col. Lang has recently posted about this, and it is a notion that is increasingly gaining traction, Der Spiegel recently had a good story about this:

How Speculators Are Causing the Cost of Living to Skyrocket, Spiegel Online, 06/13/2008.
What's Really Driving the Price of Oil?, By Beat Balzli and Frank Hornig. Spiegel Online, February 28, 2008.

Note possible effects this will have on Iran: See Watcher in the Middle's post here

[slapout9]

Found this on John Robb's weblog. Fantastic piece IMO about what our military comes home to while they are fighting to protect us.



http://www.nakedcapitalism.com/2008/...-patriots.html

[Cluster]

Another possible scenario is that the incredibly high prices in commodities are being driven by speculators

Speculation is just the froth. Oil prices have risen from $12 a barrel in 1999 to $139 currently. Oil production has been flat since 2005.This is due to fundamentals - supply and demand. To make matters worse this is just production. When you look at oil exports then the problem gets much worse. As the prices rise, producer countries consumers are getting more wealthy, which means driving more and consequently and using more oil domestically. This coupled with oil field depletion rates means that it is only a matter of time before exports begin to contract dramatically. See here of an outline of the Export Land Model. The middle case has the top five—Saudi Arabia, Russia, Norway, Iran and the UAE—collectively approaching zero net oil exports around 2031. If that is even close to being true then we are in serious trouble.

[bourbon]

MEND recently attacked Shell's Bonga oil facility that is 120km offshore, taking 200,000+ b/d offline. Probably a 7 hour infiltration by small craft. Jeff Vail has an excellent post on it: Nigeria - Significance of the Bonga Attack

[bourbon]

Bringing Down Bear Stearns, by Bryan Burrough. Vanity Fair, August 2008.

On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.
by Bryan Burrough August 2008

The Story of Deep Capture, By Mark Mitchell, with reporting by the Deep Capture Team (In PDF here)

This is very long, around 70 pages, but it is enthralling. At root is "naked short selling", something currently being debated in Washington. And at issue is a small number of law-breaking hedge funds who have seemingly co-opted or gamed the financial media.

[bourbon]

A Few Speculators Dominate Vast Market for Oil Trading, By David Cho. The Washington Post, August 21, 2008.

The CFTC, which learned about the nature of Vitol's activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the CFTC checks the status of other big traders.

Are Oil Prices Rigged?, By ARI J. OFFICER AND GARRETT J. HAYES. Time, Aug. 22, 2008.

Just how would you raise prices if you were an oil supplier? Controlling the supply — as in the 1973 OPEC embargo — has become less effective with more sources of oil worldwide. And oil suppliers clearly cannot raise prices by controlling demand in the physical oil market; ultimately, they need to sell their oil, not buy it. However, with the market inefficiencies that we expose here, oil suppliers can regain the upper hand by artificially inflating demand using a different market. To understand this mechanism, we must take a glimpse into the future — the futures market, that is.

On the offensive: How Gunvor rose to the top of Russian oil trading, By Catherine Belton and Neil Buckley. Financial Times, May 14 2008.

But many wonder whether Gunvor’s rapid expansion over the past five years – just as the Kremlin has moved in on private oil production – is due to more than just vision. The company has “one very good friend,” a former partner says. “He is at the very top level,” says another.

Some have speculated whether there are ties that bind Gunvor’s other co-founder, Gennady Timchenko, and Vladimir Putin, Russia’s president from 2000 until last week. As the company emerges from obscurity, some details of the connections between the two are finally becoming clear. The company claims that it has not benefited from any political favours.

[wm]

Interesting news from the Saudi's as reported in the NYT article here

Hours after suffering a rare setback in a negotiating session at OPEC’s headquarters, Saudi Arabian officials assured world markets on Wednesday that they would ignore the wishes of other cartel members and continue to pump plenty of oil.

The late-night bargaining session ended early Wednesday morning with a surprise declaration that OPEC would cut production to shore up sagging prices. Saudi negotiators publicly endorsed that position, but then spent much of Wednesday privately spreading the word that they did not feel bound by it.

[bourbon]

New SEC Rules Target 'Naked' Short-Selling, By Marcy Gordon. The Washington Post, September 18, 2008.

Banking crisis: Regulators look to curb naked ambition of the short sellers, by Simon Bowers. guardian.co.uk, September 17 2008.

I linked to it a few posts down, but here it is again-- the story of 'naked' short-selling: The Story of Deep Capture, By Mark Mitchell, with reporting by the Deep Capture Team (In PDF here)
www.deepcapture.com

[Schmedlap]

Interesting news from the Saudi's as reported in the NYT article here

The Saudis have a long history as price makers. In 1981 and 2001 - maybe also in the 1990s, they ramped up production to flood the market and drive prices down in order to punish cheating cartel members. They may also be motivated to make Iran and Russia feel the pain of low prices (since Russia helps out Iran).

[slapout9]

Stay tuned the time is just about right for some SBE (Slapout Base Ecocnomics).

[slapout9]

The Center of Gravity of the current Financial Crisis was activated in 1999 with the repeal of the Glass-Steagall act. Glass-Steagall was enacted in 1933 after the 1929 crash in order to prevent exactly what is happening now. The law separated Commercial Banking from Stock Brokerage firms because if you mix the two sooner or later you will create a crisis because the two do not go together.
In order to begin to fix the problem Glass-Stefall needs to be reimplemented and then put a real banker in charge, not a stock broker. Just look at Paulson"s latest recommendation. He doesn't want to be the lender of last resort which is what the Federal Reserve was designed to be on purpose...no he wants give the banks money in exchange for Stocks Do you think Goldman Sachs will get a piece of that action. That is a clear conflict of interest. More later.
Link to MP3 of Glass-Stegall act and comparison of today's crisis.
http://www.altruists.org/f178

[Ken White]

The Center of Gravity of the current Financial Crisis was activated in 1999 with the repeal of the Glass-Steagall act...

While it certainly had an effect, here are the main culprits, in sequence; The Community Reinvestment Act, 1977(LINK); the Depository Institutions Deregulation and Monetary Control Act, 1980; the Garn-St. Germain Depository Institutions Act, 1982 (The S&L debacle...) and of course, the Gramm-Leach-Bliley Act in 1999 which eliminated Glass-Stegall and which had been pushed by Robert Rubin and Larry Summers and was signed by Clinton.

I agree on your fix but the elimination of Glass-Stegall was just the latest in over 30 years of gross stupidity by Congress.

[jmm99]

I should mouth off; but I won't because the two of you are exactly on the right track - and I'm enjoying the discussion without having to think - or to defend my positions.

Only one disagreement (non-legal) with Ken:

... over 30 years of gross stupidity by Congress ...

I would modify that to "over 30 years of gross venality by Congress." This mess has everything to do with $$ and "gratuities" to Congresspeople (ain't PC wonderful).

[selil]

I think I would follow it back to the late 1940s like Fabius Maximus did and what he has been calling the debt super cycle followed by a boomer wave.

[Ken White]

Congress has been venal AND stupid for longer than 30 years...

[davidbfpo]

I have deliberately avoided reading much on the financial crisis, but a couple of points here give cause to comment.

I fully accept that various US legislation and the alleged venality / corruption of the body politic has had an impact.

From observing other spheres of human activity is the financial crisis yet another example of ingenuity outpacing understanding?

We have seen this in the development of military technology, often called an arms race and is not a modern phenomenon - which I see when visiting centuries old fortifications. The snag is that too often there is a significant time lag between the technical, military, government, social and other sectors understanding the new.

Clearly clever or venal financiers have pursued sub-prime mortgages and securitisation without many fully understanding what was happening, let alone the potential impact if something went wrong.

davidbfpo

[selil]

[Hacksaw]

That conversation would be a heck of a lot funnier if it didn't ring so farging true... Ugh