Archive for November, 2008

It seems like it’s been forever since I could buy a gallon of gas for $1.65.  That might be about as low as it’s going to get, according to Bloomberg.

Oil options contracts indicate that a growing number of investors expect prices to rise from three- year lows, industry consultant Petromatrix GmbH said. The number of outstanding contracts that give traders an option to buy crude oil is nearly the same as the number giving the right to sell for the first time since July 2007…

Hedge funds and other large speculators bet last week that futures will recover, reversing three weeks of bets that prices will fall, according to U.S. Commodity Futures Trading Commission data.

In other words, the speculators are betting that the price of oil will go up.

Back in June, Republicans were claiming oil prices to be on the rise because Democrats were blocking off-shore drilling, but they didn’t talk about the upward effect on prices due to speculation.  Although U.S. off-shore drilling would have an almost immediate downward impact on the world price of oil, the effect of speculation on oil prices reaching record levels in 2008 should not be overlooked.

In the following video, Keith Olbermann talks about how john McCain supported what’s come to be known as the Enron loophole, which unleashed the ability of speculators to run up energy prices.  Olbermann calls it “a legalized form of insider trading” which “lets speculators overwhelming trading in oil futures.”


By being able to speculate on the future of oil prices, according to Olbermann, the speculators have driven up the price of oil to more than double what it was before the loophole was created, and this speculation has created the potential explosion of a large ‘oil bubble’.

Has the bubble finally burst?

Is deregulated speculation a good thing?  Apparently not when employed by self-seeking shysters like Enron, who nearly brought California to its knees by speculating on electricity.  Enron cornered the market on energy, and were able to drive up prices dramatically because of it.

The speculators have not just been placing bets on the price of energy, they have been controlling the future prices in an effort to profit from it, according to Michael Greenberger, former chairman of the US Commodity Futures Trading Commission, who testified before a US Senate committee  meeting on June 3, 2008.  It was estimated that in the last two years, the average family has spent at least $1500 on energy due to collaborative speculation.  Speculation, according to George Soros, has allowed banks and other financial institutions to set aside larger reserves of petroleum than we have in our entire U.S. national reserve.

The Enron Loophole was closed on September 30, 2008.  Not long thereafter, prices started coming down precipitously.  Obviously, other factors, such as declining demand in a weak worldwide economy, have contributed to the downward pressure.  However, it’s clear that speculative control of large swaths of the market caused the price to go up.  It’s more than coincidental that prices have gone down markedly since the Enron Loophole was closed on September 30th.


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David Brooks puts into perspective just how grandiose the current, on-going economic bailout is.

Over the past year, the federal government has poured money into the economy hundreds of billions of dollars at a time. It has also guaranteed investments, loans and deposits worth about $8 trillion. Barry Ritholtz, the author of “Bailout Nation,” points out that this project constitutes the largest infusion in American history.

If you add up just the funds that have already been committed, you get a figure, according to Jim Bianco of Bianco Research, that is larger in today’s dollars than the costs of the Marshall Plan, the Louisiana Purchase, the New Deal, the Korean War, Vietnam and the S.&L. crisis combined.

Paul Krugman chastises the Establishment for not noticing the economic freight train that has been approaching at top speed for the past few years:

A few months ago I found myself at a meeting of economists and finance officials, discussing — what else? — the crisis. There was a lot of soul-searching going on. One senior policy maker asked, “Why didn’t we see this coming?”

There was, of course, only one thing to say in reply, so I said it: “What do you mean ‘we,’ white man?”

Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories?

Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world?

Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

He answers that they did see it coming, but that no one wanted to be the party pooper.

Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?

[After the crisis of 1997-98] everyone declared a victory party over our pullback from the brink, while forgetting to ask how we got so close to the brink in the first place.

…investors came to believe that Mr. Greenspan had the magical power to solve all problems — and so, one suspects, did Mr. Greenspan himself, who opposed all proposals for prudential regulation of the financial system.

Now is the time, says Krugman, to begin to prevent the next catastrophe.

Yet the experience of the last decade suggests that we should be worrying about financial reform, above all regulating the “shadow banking system” at the heart of the current mess, sooner rather than later. For once the economy is on the road to recovery, the wheeler-dealers will be making easy money again — and will lobby hard against anyone who tries to limit their bottom lines.

Michael Porter, a Massachusetts Republican from Harvard Business School, who worked with the Mitt Romney presidential campaign, thinks that we still have the problem of looking at economics from a fragmented and incoherent political and short-term tactical perspective, rather than from a strategic perspective.

Government leaders react to current events piecemeal, rather than developing a strategy that unfolds over years. Congress and the Executive Branch are organized around discrete policy areas, not around the overall goal of improving competitiveness. Neither candidate has put forward anything close to a strategy; rather, each has presented a set of disconnected policy proposals with political appeal. Both parties contribute to the problem by approaching the economy with long-held ideologies and policy positions, many of which no longer fit with today’s reality.

Ironically, while other countries understand the importance of fair competition, America is shrinking from the competetive.  While we have been falling back to focus on short-term gains, other countries are increasing college education, reinvestment in science and technology as a means to foster entrepeneurship, and they spend an increasing share of GDP on research and development.  In a “me-me-me” consumerism society, this is not surprising that we are falling behind.

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Is Obama Lust Nearing an End?

It’s kind of ironic that the media wait until their candidate is elected before they finally admit their personal infatuation with him.  Now they promise to get tough.

Coordinated Mumbai Attacks Do Not Occasion US Self-Reflection

Whenever a terror attack occurs against Westerners in the Middle East, Americans wax poetic about how the terrorists are so rude to Americans. Just as on 9/11, we can’t fathom why they hate us. The coordinated attacks in Mumbai are no different.  As Kenneth Pollack, author of Persian Puzzle says,

Americans are serial amnesiacs. We forget what we have done almost immediately after doing it. We often hold grudges, but we just as often can’t remember why.

We would do well to study our history a little bit more heartily.  Then we might understand why many of our early presidents admonished us not to get involved in entangling alliances.

Iraqis Even Less Enamored with US Now that We Plan to Stay for at Least Three More Years

While the Japanese respect the wishes of the Iraqi people, the United States decides to overstay its welcome once again–for at least three more years.

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As The Economy Tumbles

AIG Bailout Is Not Enough

The government has already given AIG over 100 million dollars, but they scream for more:

The government’s original emergency line of credit, while saving A.I.G. from bankruptcy for a time, now appears to have accelerated the company’s problems. The government’s original short-term loan came with an expensive interest rate — about 14 percent — which forced the company into a fire-sale of its assets and reduced its ability to pay back the loan, putting the company’s future in jeopardy.

China “Stimulating” Money Out of Thin Air

In a lesson it learned from perhaps the United States Federal Reserve, China is printing a whole bunch more money so that it can inflate prices there.

China’s package is not comparable to fiscal stimulus measures that are being discussed in Washington. In China, much of the capital for infrastructure improvements comes not from central and local governments but from state banks and state-owned companies that are encouraged to expand more rapidly.

“Over the past two months, the global financial crisis has been intensifying daily,” the State Council said in a statement. “In expanding investment, we must be fast and heavy-handed.”

Asian markets welcomed news of the stimulus plan. The Japanese Nikkei index rose 5.6 percent in trading early Monday. Stocks in Hong Kong and Shanghai rallied strongly, jumping over 5 percent and lifting share prices that have been depressed for much of the year.

We’ll see how long that welcoming attitude lasts.

Will Obama’s Intellectual Capacity Help The Economy?  I’ll Bet It Won’t Hurt!!

Obama just might be the first truly intellectual president since JFK.

Barack Obama’s election is a milestone in more than his pigmentation. The second most remarkable thing about his election is that American voters have just picked a president who is an open, out-of-the-closet, practicing intellectual.

Maybe, just maybe, the result will be a step away from the anti-intellectualism that has long been a strain in American life. Smart and educated leadership is no panacea, but we’ve seen recently that the converse — a White House that scorns expertise and shrugs at nuance — doesn’t get very far either.

As for President Bush, he adopted anti-intellectualism as administration policy, repeatedly rejecting expertise (from Middle East experts, climate scientists and reproductive health specialists). Mr. Bush is smart in the sense of remembering facts and faces, yet I can’t think of anybody I’ve ever interviewed who appeared so uninterested in ideas.

Besides the fact that America now has the respect for diversity to elect a black man, President Obama seems to be able to speak in more than sound bites.

Mr. Obama, unlike most politicians near a microphone, exults in complexity. He doesn’t condescend or oversimplify nearly as much as politicians often do, and he speaks in paragraphs rather than sound bites.

…as Mr. Obama goes to Washington, I’m hopeful that his fertile mind will set a new tone for our country.

Only In America Could Something Like This Happen

Thomas Friedman identifies the pleasant paradox:

So, I was speaking to an Iranian friend about what a mind-bending thing it must be for people in the Middle East to see Americans, seven years after 9/11, electing someone named Barack Hussein Obama as president. America is surely the only nation that could — in the same decade — go to war against a president named Hussein (Saddam of Iraq), threaten to use force against a country whose most revered religious martyr is named Hussein (Iran) and then elect its own president who’s middle-named Hussein.

Is this a great country or what?

But maybe Friedman is a bit to euphoric.

The U.N. says it doesn’t want Iran to go nuclear and doesn’t want the U.S. to use force to prevent Iran from going nuclear. I agree. That’s why I want all those people in China, France, Russia, India and Germany who are smiling for Obama to go out and demand that their governments use their tremendous economic leverage with Iran to let the Iranians know that if Tehran continues to move toward a nuclear weapon, in opposition to U.N. resolutions, these countries will impose real economic sanctions. Nothing — and I mean nothing — would more help President-elect Obama to forge a diplomatic deal with Iran than having a threat of biting Chinese, Indian and E.U. economic sanctions in his holster.

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David Leonhardt says we should go further into debt:

This year’s election coincided with an important moment in the financial crisis. The credit markets have stabilized in the last few weeks and even improved a bit. But the rest of the economy is deteriorating fairly rapidly. It’s now in danger of falling into a vicious spiral, in which spending cuts by consumers and businesses lead to further layoffs and then more spending cuts.

Markets have stabilized?  That’s the most wishful of thinking.

To our President Elect, who says…

There is nothing we can’t do, nothing we can’t accomplish if we are unified.

…the Mises Institute asks, So you think you can fool mother nature?

Economics. It’s not just a good idea. It’s the law.

How soon will the honeymoon be over?  Sheldon Richman of the Foundation for Economic Education, warns

Valuable as Obama’s skills are, they will be useless if he attempts to solve our economic problems directly by an exercise of power. That’s because there is something he does not have — something no man or woman can have: the power to repeal the laws of economics.

Obama recently listed his top priorities upon taking office on January 20th.  Every single one of these priorities constitute attempted fixes to the economy.  It may be difficult for most people to understand this, but the laws of economics always win.  If government tries to fix things, it only makes things worse.  Just as FDR’s actions in the 1930’s prolonged and worsened the Great Depression, President Obama’s stimulus packages, health care plans, bailouts for state and local governments, and trillion dollar annual debts will end up making things far worse than they would have been.

It’s unfortunate that the office of United States President approaches ever closer to that of king.  Has a larger group of people swooned so much before one man since the Germans blessed Adolf Hitler?  Richman says

In a truly free society, the presidency would not be the most visible high-status position our society offers. That designation would be reserved for a variety of private-sector roles. Unfortunately, however, the presidency does have that status today, and Obama’s election must be appreciated from that perspective. Relatedly, I am uneasy about, though understanding of, the public displays that followed John McCain’s concession Tuesday night. Again, Wilkinson: “[F]rankly, I hope never to see again streets thronging with people chanting the victorious leader’s name.” Amen.

Richman explains why government will fail against the natural economic juggernaut, and gives a concrete example of what happens when government gets too big for its britches:

We live in a world of scarcity, and the list of scarce resources includes time and knowledge. At any moment demand exceeds supply. Under these conditions, we adapt means to achieve chosen ends. We face opportunity costs and make tradeoffs according to our subjective preferences. The result is the market — that emergent order which serves the general welfare and encourages personal responsibility as each person pursues his or her private interests.

If government…intervenes — to raise or lower costs, to increase or reduce rewards, to tamper with prices or interest rates — we will modify our behavior, knocking self-interest and the general welfare out of alignment. A subsidy for medical insurance will increase the demand for services and raise prices.

The primary reason health care costs are so high in the United States is government.  Government can fix the problem, but only by making laws that comport with the inexorable laws of economics.

A former aide to President Ronald Reagan thinks Obama is in a sticky wicket.  This from the New York Times:

Much of the issue may be out of Mr. Obama’s hands. The $700 billion financial bailout threatens to push the deficit into the stratosphere. “The poor man has his hands tied by the economic and financial mess we have right now,” said John Tuck, a former aide to President Ronald Reagan. “I don’t know what his options are. They’re very, very limited.”

FDR was ambitious.  He got a lot done, and we’re still paying for it.  LBJ was nearly as ambitious as his political idol.  He gave us The Great Society, which began a sharp downward trend in social and economic cohesiveness.  Maybe it would be better for Obama to be ambitious.  The backlash would be even more ambitious and very fortuitous.

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William Pfaff of TruthDig reminds us that the challenges everyone seems to think President Obama is facing are really opportunities:

The basic Bush policies—defense spending at levels higher than all the rest of the world combined, unilateralism, hostility to the United Nations and international law, advocacy of “preventive” wars, efforts to dominate the Middle East, constant pressure on Russia and what might be called contingent hostility toward China, opposition to European Union efforts at military cooperation—all have been promoted since the 1990s by nationalist and neoconservative Republicans acting through the conservative Washington think tanks.

These reflect the long-term ambitions for economic and military hegemony that animated Bush administration foreign policy. Many of the same people and their followers will try to introduce the same ideas into the foreign policy of the new Obama government. The president-elect is a foreign policy novice and will find himself under great pressure to follow Middle Eastern and China and Russia policies inherited from George Bush, even though these are what Barack Obama was elected to change or terminate.

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5:10 PM – John McCain carried Kentucky, and Barack Obama countered with a victory in Vermont on Tuesday night as he bid to become the first black president. Democrats gained a Senate seat, the first of several they had in their sights in a country at war and anything but prosperous.

World hopes for a ‘less arrogant America’

Crowds gather all over globe to follow historic U.S. elections

As millions of American voters decided between Obama or John McCain, the world was abuzz, ready to bear witness to a moment of history that would reverberate well beyond American borders.

“America is electing a new president, but for the Germans, for Europeans, it is electing the next world leader,” said Alexander Rahr, director of the German Council on Foreign Relations.

Tom Delay predicts Democrats, with projected 261-174 majority in House will double the minimum wage soon.

The Beginning of an anti-Reagan Counterrevolution?  No, Just a Stupid Economy

Some analysts see a turning point in American politics like what occurred in 1980, when Republican Ronald Reagan’s victory over President Carter set the nation on a more conservative course for the past quarter-century.

The analysts caution, however, that the ability of a new president and his party to deliver on campaign promises to calm the roiling economy, withdraw U.S. troops from Iraq and expand health care coverage would determine whether the 2008 election turns out to be a long-term realignment for Democrats or a one-time repudiation of an unpopular Republican president at a time many Americans are unnerved by economic turmoil.

Nearly two-thirds of those polled after they cast their ballots called the economy the most important issue facing the country — the most single-minded electorate in two decades of exit polling.

Not even terrorism trumped those feelings:

More voters identified the economy as the country’s most pressing problem than every other issue combined.

That’s a contrast to 2004, when “moral values” ranked first and concern was divided about evenly among that issue and the economy, terrorism and the Iraq war. Two years ago, in the 2006 congressional elections that produced big Democratic gains, Iraq was the nation’s No. 1 concern.

No more.

Now, just 10% called the war the most important issue. Americans were more likely to say they were very worried about not being able to afford health care than about the possibility of another major terrorist attack in the United States.

Thomas Friedman says the “Buffett Effect” helped propel Obama over the top:

But there also may have been something of a “Buffett effect” that countered the supposed “Bradley effect” — white voters telling pollsters they’d vote for Obama but then voting for the white guy. The Buffett effect was just the opposite. It was white conservatives telling the guys in the men’s grill at the country club that they were voting for John McCain, but then quietly going into the booth and voting for Obama, even though they knew it would mean higher taxes.

Why? Some did it because they sensed how inspired and hopeful their kids were about an Obama presidency, and they not only didn’t want to dash those hopes, they secretly wanted to share them. Others intuitively embraced Warren Buffett’s view that if you are rich and successful today, it is first and foremost because you were lucky enough to be born in America at this time — and never forget that. So, we need to get back to fixing our country — we need a president who can unify us for nation-building at home.

California Same-Sex Couples Race to Beat Ballot

“We’re doing this while we still can,” said Ms. Fey, 44, a life coach who has been with Ms. Broadbeck for 11 years and through two previous same-sex marriage ceremonies, neither recognized as legal. “I mean, trust me, we feel married. But this is a legal response.”

With polls showing the outcome of a ballot measure on Tuesday on outlawing same-sex marriage in California a tossup, couples were not taking any chances on Monday. They showed up early here at City Hall, wearing boutonnieres and blouses and holding hands — and their collective breath.

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