http://seekingalpha.com/article/166517-central-banks-shift-reserves-away-from-u-s-dollar
Central Banks Shift Reserves Away from U.S. Dollar
The problem with trying to specify why the U.S. dollar is currently having its worst collapse in two decades is that one would wear out their fingers on their keyboard before they ran out of reasons.
Let's start with economic fundamentals. The U.S. is hopelessly insolvent. It has over $57 trillion in current public/private debt (see “A Tale of Two Economies: U.S. versus China”). However, since none of the three levels of governments properly accounts for their future obligations, their largest liabilities are not even recorded on their balance sheets – with “unfunded liabilities” for the federal government (alone) somewhere around $70 trillion. With real GDP of roughly $11 trillion per year, this economy is simply much too small to even service those debts and liabilities. Given that there are no assets “backing” the U.S. dollar, then obviously the value of a currency of a totally insolvent economy is near-zero.
With mountains of debt far in excess of the rest of the world combined, allowing (or rather encouraging) the collapse of the U.S. dollar is the only way for the U.S. government to delay formal bankruptcy.
Most of the remaining arguments which guarantee a weak dollar in the future fall under the category of either “supply” or “demand”. On the supply-side, a recent article in The Telegraph puts one measurement of U.S. money-creation at over 100% for the previous year, with the even more insolvent financial system of the U.K. showing growth in the money supply of more than 160%, using the same measurement.
This is more than ten times higher than during the loose monetary policy which caused all these bubbles in financial markets. Like an alcoholic, who reaches for a 'bottle' first thing in the morning to relieve his hang-over, the U.S. and U.K. are doing much more of what caused their problems in the first place – and calling it a “fix” (again, much like an addict).
Meanwhile, a world already over-saturated with U.S. debt has been bombarded with trillions of dollars in new U.S. Treasuries. The “TIC reports” for this year show that instead of the usual $100+ billion per month in accumulation of U.S. debt by foreign entities that these same investors have dumped (on a net basis) hundreds of billions of dollars of U.S. “assets” this year (see “Foreign Investors FLEE From U.S. Debt”). In order to pretend that there is still demand for U.S. Treasuries, the U.S. has begun to “monetize” this debt – printing money to “buy” its own debts.
The Federal Reserve has engaged in massive chicanery to hide most of these purchases, aided by the Treasury Department, with its own reports on Treasuries auctions now so convoluted that traders with decades of experience in this market are totally unable to even decipher the descriptions of what is taking place in those auctions.
Ultimately, the key demonstration of demand for the U.S. dollar (or lack thereof) are the currency reserve ratios of foreign governments. Over the last several decades, the holdings of U.S. dollars have constituted well over 2/3rds of the holdings of foreign governments. However, in the 2nd quarter, foreign governments were only putting 1/3rd of their surpluses into U.S. dollars – literally only half of historical demand.
Exacerbating this trend, thanks to the Wall Street-engineered global recession, those surpluses are all much smaller than they were just two years ago. Thus, at a time when the U.S. has doubled its supply of U.S. dollars, demand has simultaneously been cut by more than half. Even those without a firm grasp of basic economics can understand what these parameters mean. And the recent collapse in the U.S. dollar would have even been worse, but several Asian central banks intervened in currency markets last week by buying up some dollars – perhaps the only thing preventing the dollar from a complete nose-dive.
As if these economic and supply/demand fundamentals weren't already bad enough, as many (including myself) have pointed out, the dollar has been selected by traders as the new “carry-trade” currency, inheriting the yen's dubious honour as the world's official “weakest currency”.
This new “role” for the dollar comes as the result of the combination of near-zero interest rates, along with an economy (and particularly, a financial sector) which is so weak that traders are convinced the U.S. government will be unable to raise interest rates at any time – again much like Japan, and its “lost generation” with the yen.
The only way in which U.S. interest rates will rise is if higher rates are imposed on the U.S. by the global bond market. Since such a move would occur only based upon soaring U.S. inflation and/or a fear of imminent debt-default, even if rates were forced higher this would not cause increased demand (for the exact reasons why rates were forced up).
This carry-trade status ensures that the dollar will be even weaker in the future than it would have been on fundamentals alone, because the mechanics of the carry-trade dictate that vast quantities of the carry-trade currency are continually being dumped onto global currency markets.
If it seems that dollar-bears are taking excessive “pot-shots” at the dollar, it's because there remains a huge contingent of inane dollar perma-bulls. These “experts” don't let a little thing like the U.S.'s insolvency stop them from boldly predicting that the dollar's current collapse is only a temporary, short-term trend. However, when it comes to “reasoning”, the dollar bulls are capable of nothing more than pointing to past periods of dollar weakness – and mindlessly concluding that those outdated patterns will repeat.
The problem is that in previous currency cycles, the U.S. wasn't sitting with $57 trillion in existing debts, and an additional $70 trillion in unfunded liabilities. In past cycles the U.S. didn't have interest rates frozen at their lowest level in history. In past cycles there was not a clear move away from the dollar by the entire global community. And (of course), in past cycles the U.S. dollar was not a carry-trade currency.
Yes, truly, it is “different this time.” However, don't bother trying to convince dollar-bulls of this. They would much prefer living in the past.
Wednesday, October 14, 2009
SC96-13
http://www.ricefarmer.blogspot.com/
Wednesday, October 14, 2009
US Is Insolvent, Batten Down the Hatches
As a follow-up on my previous post, here is a description which deals specifically with the grave — and frankly hopeless — financial situation of the US. Let me warn you that this is not pretty. If you have a faint heart, take your medication before reading. Crushing debt, a currency that grows more worthless by the day, a declining economy... but such is the way of all empires.
Defaults by Developed Nations?
You betcha. There’s a lot of complacency in the industrialized nations, with people thinking that debt defaults are things that happen to banana republics. Rich countries don’t go bust, right?
Think again. One of the prime indicators of fiscal health is the debt-to-GDP ratio, which shows how a country’s public debt compares to its GDP.
You’ll hear different opinions on what a healthy or manageable level is, but if you think of it in terms of a household economy, having a debt load that’s near half your annual income is pushing your luck. Yet, many countries are at 50% or over. Here is a table compiled by the CIA. The latest figures are from 2008, so you can bet most of these are now higher.
The big shocker for many people will be seeing that economic powerhouse Japan at the number 2 spot, right after Zimbabwe. It’s a prime example that a lot of our “prosperity” is actually financed with debt. While Japan is listed here at 173%, it is widely believed that it will approach 200% within the year. Now, let’s be realistic. Even if the world economy heats up again, which it won’t, do you think debt like that can be repaid? Can you spell “default”?
But of course, such talk is taboo. Yet, we are hearing more and more of it. This blog entry notes that “By 2014, says the IMF, total public debt in the advanced economies will balloon to an unprecedented 115 percent of their GDP, compared with 75 percent in 2008.”
Another thing to keep in mind is that this indicator is a ratio, so it changes when either debt or GDP changes. If a country has the same GDP, but rising debt, the ratio will go up. On the other hand, even if debt is not rising but GDP falls, the ratio will go up. Since GDPs have been sustained by growth that is in turn fueled by cheap energy, it’s a safe bet that few countries will escape GDP decline as energy constrains build. Do you see a problem here? The bottom line: Look for massive government defaults.
Wednesday, October 14, 2009
US Is Insolvent, Batten Down the Hatches
As a follow-up on my previous post, here is a description which deals specifically with the grave — and frankly hopeless — financial situation of the US. Let me warn you that this is not pretty. If you have a faint heart, take your medication before reading. Crushing debt, a currency that grows more worthless by the day, a declining economy... but such is the way of all empires.
Defaults by Developed Nations?
You betcha. There’s a lot of complacency in the industrialized nations, with people thinking that debt defaults are things that happen to banana republics. Rich countries don’t go bust, right?
Think again. One of the prime indicators of fiscal health is the debt-to-GDP ratio, which shows how a country’s public debt compares to its GDP.
You’ll hear different opinions on what a healthy or manageable level is, but if you think of it in terms of a household economy, having a debt load that’s near half your annual income is pushing your luck. Yet, many countries are at 50% or over. Here is a table compiled by the CIA. The latest figures are from 2008, so you can bet most of these are now higher.
The big shocker for many people will be seeing that economic powerhouse Japan at the number 2 spot, right after Zimbabwe. It’s a prime example that a lot of our “prosperity” is actually financed with debt. While Japan is listed here at 173%, it is widely believed that it will approach 200% within the year. Now, let’s be realistic. Even if the world economy heats up again, which it won’t, do you think debt like that can be repaid? Can you spell “default”?
But of course, such talk is taboo. Yet, we are hearing more and more of it. This blog entry notes that “By 2014, says the IMF, total public debt in the advanced economies will balloon to an unprecedented 115 percent of their GDP, compared with 75 percent in 2008.”
Another thing to keep in mind is that this indicator is a ratio, so it changes when either debt or GDP changes. If a country has the same GDP, but rising debt, the ratio will go up. On the other hand, even if debt is not rising but GDP falls, the ratio will go up. Since GDPs have been sustained by growth that is in turn fueled by cheap energy, it’s a safe bet that few countries will escape GDP decline as energy constrains build. Do you see a problem here? The bottom line: Look for massive government defaults.
Friday, October 9, 2009
SC96-12
http://www.informationclearinghouse.info/article23681.htm#
Warmonger Wins Peace Prize
It took 25 years longer than George Orwell thought for the slogans of 1984 to become reality.
“War is Peace,” “Freedom is Slavery,” “Ignorance is Strength.”
I would add, “Lie is Truth.”
The Nobel Committee has awarded the 2009 Peace Prize to President Obama, the person who started a new war in Pakistan, upped the war in Afghanistan, and continues to threaten Iran with attack unless Iran does what the US government demands and relinquishes its rights as a signatory to the non-proliferation treaty.
The Nobel committee chairman, Thorbjoern Jagland said, “Only very rarely has a person to the same extent as Obama captured the world’s attention and given its people hope for a better future.”
Obama, the committee gushed, has created “a new climate in international politics.”
Tell that to the 2 million displaced Pakistanis and the unknown numbers of dead ones that Obama has racked up in his few months in office. Tell that to the Afghans where civilian deaths continue to mount as Obama’s “war of necessity” drones on indeterminably.
No Bush policy has changed. Iraq is still occupied. The Guantanamo torture prison is still functioning. Rendition and assassinations are still occurring. Spying on Americans without warrants is still the order of the day. Civil liberties are continuing to be violated in the name of Oceania’s “war on terror.”
Apparently, the Nobel committee is suffering from the delusion that, being a minority, Obama is going to put a stop to Western hegemony over darker-skinned peoples.
The non-cynical can say that the Nobel committee is seizing on Obama’s rhetoric to lock him into the pursuit of peace instead of war. We can all hope that it works. But the more likely result is that the award has made “War is Peace” the reality.
Obama has done nothing to hold the criminal Bush regime to account, and the Obama administration has bribed and threatened the Palestinian Authority to go along with the US/Israeli plan to deep-six the UN’s Goldstone Report on Israeli war crimes committed during Israel’s inhuman military attack on the defenseless civilian population in the Gaza Ghetto.
The US Ministry of Truth is delivering the Obama administration’s propaganda that Iran only notified the IAEA of its “secret” new nuclear facility because Iran discovered that US intelligence had discovered the “secret” facility. This propaganda is designed to undercut the fact of Iran’s compliance with the Safeguards Agreement and to continue the momentum for a military attack on Iran.
The Nobel committee has placed all its hopes on a bit of skin color.
“War is Peace” is now the position of the formerly antiwar organization, Code Pink. Code Pink has decided that women’s rights are worth a war in Afghanistan.
When justifications for war become almost endless--oil, hegemony, women’s rights, democracy, revenge for 9/11, denying bases to al Qaeda and protecting against terrorists--war becomes the path to peace.
The Nobel committee has bestowed the prestige of its Peace Prize on Newspeak and Doublethink.
Warmonger Wins Peace Prize
It took 25 years longer than George Orwell thought for the slogans of 1984 to become reality.
“War is Peace,” “Freedom is Slavery,” “Ignorance is Strength.”
I would add, “Lie is Truth.”
The Nobel Committee has awarded the 2009 Peace Prize to President Obama, the person who started a new war in Pakistan, upped the war in Afghanistan, and continues to threaten Iran with attack unless Iran does what the US government demands and relinquishes its rights as a signatory to the non-proliferation treaty.
The Nobel committee chairman, Thorbjoern Jagland said, “Only very rarely has a person to the same extent as Obama captured the world’s attention and given its people hope for a better future.”
Obama, the committee gushed, has created “a new climate in international politics.”
Tell that to the 2 million displaced Pakistanis and the unknown numbers of dead ones that Obama has racked up in his few months in office. Tell that to the Afghans where civilian deaths continue to mount as Obama’s “war of necessity” drones on indeterminably.
No Bush policy has changed. Iraq is still occupied. The Guantanamo torture prison is still functioning. Rendition and assassinations are still occurring. Spying on Americans without warrants is still the order of the day. Civil liberties are continuing to be violated in the name of Oceania’s “war on terror.”
Apparently, the Nobel committee is suffering from the delusion that, being a minority, Obama is going to put a stop to Western hegemony over darker-skinned peoples.
The non-cynical can say that the Nobel committee is seizing on Obama’s rhetoric to lock him into the pursuit of peace instead of war. We can all hope that it works. But the more likely result is that the award has made “War is Peace” the reality.
Obama has done nothing to hold the criminal Bush regime to account, and the Obama administration has bribed and threatened the Palestinian Authority to go along with the US/Israeli plan to deep-six the UN’s Goldstone Report on Israeli war crimes committed during Israel’s inhuman military attack on the defenseless civilian population in the Gaza Ghetto.
The US Ministry of Truth is delivering the Obama administration’s propaganda that Iran only notified the IAEA of its “secret” new nuclear facility because Iran discovered that US intelligence had discovered the “secret” facility. This propaganda is designed to undercut the fact of Iran’s compliance with the Safeguards Agreement and to continue the momentum for a military attack on Iran.
The Nobel committee has placed all its hopes on a bit of skin color.
“War is Peace” is now the position of the formerly antiwar organization, Code Pink. Code Pink has decided that women’s rights are worth a war in Afghanistan.
When justifications for war become almost endless--oil, hegemony, women’s rights, democracy, revenge for 9/11, denying bases to al Qaeda and protecting against terrorists--war becomes the path to peace.
The Nobel committee has bestowed the prestige of its Peace Prize on Newspeak and Doublethink.
Thursday, October 8, 2009
SC96-11
http://thearchdruidreport.blogspot.com/
The Metastasis of Money
......So how did money get transformed from a convenient yardstick for real wealth to the be-all and end-all of contemporary economic life? At least three factors were involved, two of them common to complex urban societies throughout history, one unique to ours.
First, despite the drastic oversimplifications of the textbook example cited earlier, it reflects a reality: a complex society can gain significant advantages from a medium of exchange that can be traded for any form of wealth. Even in societies where most goods and services are distributed by way of social networks, a social consensus tends to establish certain trade goods – wampum shell strings among the First Nations of eastern North America, for instance – as a common measure for those goods and services that are exchanged in other ways. As a society becomes more complex and the division of labor among different crafts expands, some standard measure of wealth becomes more useful. While money itself was invented around 700 BCE by the ancient Greeks, other ways of measuring wealth for the sake of easy exchange had been in use in Old World urban societies for millennia before then, and it’s not inaccurate to include money or some equivalent system as part of the basic toolkit that makes complex urban societies possible.
Second, whenever common measures of wealth are controlled by institutions, those who manage those institutions become powerful, and can be counted on to maintain and expand their power whenever possible. In ancient Egypt, for example, grain in temple warehouses provided the basic measure of wealth; as a result the priests who controlled the stockpiled grain became a potent political force. In medieval Europe, when land was the basic measure of wealth – there’s a reason we still call it “real estate,” as though all other wealth is unreal – the power of the feudal nobility derived directly from their control of land. Today the governments that claim exclusive power to print and regulate money, and the banks and financial corporations that manage most of society’s money, derive much of their effective power from their control over the medium of economic exchange, and can be counted on to encourage the rest of society to rely ever more completely on the thing that gives them power.
These two factors can be traced in the history of most of the complex urban societies of the past. What makes our civilization something of an extreme case is a third factor – the extreme complexity of an economic system that has temporarily replaced the limited energy resources of other human societies with a torrent of cheap and abundant energy from fossil fuels.
Ilya Prigogine, one of the most innovative physicists of recent years, showed via a series of dizzyingly complex equations that the flow of energy through a system increases the complexity of the system. If there was ever any doubt of the accuracy of his claim, it was settled by the economic history of the western world from 1700 to the present. The societies over which the tsunami of the Industrial Revolution broke in the early 18th century were not unusually complex by the standards of past civilizations; their own contemporaries in the Chinese and Ottoman Empires considered western Europeans, and not without reason, to be grunting, smelly barbarians with few of the arts and graces of civilization.
Fossil fuels may not have done anything about the gracelessness and the smell, but it certainly made up for any shortage in complexity. Until the dawn of the industrial age, as a general rule of thumb, some 90% of the inhabitants of any complex society worked in agriculture, providing the food and raw materials that supported themselves as well as the 10% who could be spared for all other economic roles. By 1900, at the zenith of the age of coal, many nations in the industrial world had dropped the percentage of their work force in agriculture below 50%, and shifted the workers thus freed up into a broad assortment of new economic roles. By 2000, buoyed by the much higher concentration and efficiency of petroleum, many industrial nations had dropped the percentage of their work force in agriculture below 5%, with the other 95% filling newly invented roles in the most complex economies in the history of the planet.
One consequence of this swift and unprecedented surge in complexity was the triumph of money over all other systems of exchange. When the vast majority of workers at every income level labored at tasks so specialized that their efforts only produced value when combined with those of hundreds or thousands of other workers, money provided the only way they could receive a return on their labor. When most of the customers for any given product had money and nothing else to exchange for it, buying products for money became standard. Social networks of exchange – household economies, customary local exchanges, church and fraternal networks– shattered under the strain, and were replaced by purely economic relationships – wage labor, shopping, public assistance – that could be denominated entirely in cash. The last three centuries of social and economic history are largely a chronicle of the results.
If economists took a wider view of the history of their discipline than they generally do, they might have noticed that what most of them consider a fundamental feature of all economies worth studying – the centrality of money – is actually a unique feature of an economic era defined by cheap abundant energy. Since the fossil fuels that made that era possible are being extracted at a pace many times the rate at which new supplies are being discovered, current assumptions about the role of money in society may be in for a series of unexpected revisions.
In an ironic way, this process of revision may be fostered by the antics of the world’s industrial nations as they try to forestall the Great Recession by spending money they don’t have. The economic crisis that gripped the world in 2008 was primarily driven by a drastic mismatch between money and wealth. When the price of a rundown suburban house zoomed from $75,000 to $575,000, for example, the change marked a distortion in the yardstick rather than any actual increase in the wealth being measured. That distortion caused every economic decision based on it – for example, a buyer’s willingness to go over his head into debt to buy the house, or a bank’s willingness to lend money on the basis of imaginary equity – to suffer similar distortions. Now that the yardsticks have snapped back to something like their proper length, the results of the distortion have to be cleared out of the economy if the amount of money in the system is once again to reflect the actual amount of wealth.
Yet this is exactly what governments and businesses are doing their level best to forestall. Governments are scrambling to prop up economic activity at a pace the real wealth of their societies can no longer support; banks and businesses are doing everything in their power to divert attention from the fact that a great many of the financial assets propping up their balance sheets were never worth anything in the first place and now, if possible, are worth even less. Both are doing so by the simple expedient of spending money they don’t have. As government deficits worldwide spin out of control and the total notional value of the world’s derivatives market climbs steadily above one quadrillion dollars, the decoupling of money from wealth is even more extreme than it was at the height of the real estate bubble.......
The Metastasis of Money
......So how did money get transformed from a convenient yardstick for real wealth to the be-all and end-all of contemporary economic life? At least three factors were involved, two of them common to complex urban societies throughout history, one unique to ours.
First, despite the drastic oversimplifications of the textbook example cited earlier, it reflects a reality: a complex society can gain significant advantages from a medium of exchange that can be traded for any form of wealth. Even in societies where most goods and services are distributed by way of social networks, a social consensus tends to establish certain trade goods – wampum shell strings among the First Nations of eastern North America, for instance – as a common measure for those goods and services that are exchanged in other ways. As a society becomes more complex and the division of labor among different crafts expands, some standard measure of wealth becomes more useful. While money itself was invented around 700 BCE by the ancient Greeks, other ways of measuring wealth for the sake of easy exchange had been in use in Old World urban societies for millennia before then, and it’s not inaccurate to include money or some equivalent system as part of the basic toolkit that makes complex urban societies possible.
Second, whenever common measures of wealth are controlled by institutions, those who manage those institutions become powerful, and can be counted on to maintain and expand their power whenever possible. In ancient Egypt, for example, grain in temple warehouses provided the basic measure of wealth; as a result the priests who controlled the stockpiled grain became a potent political force. In medieval Europe, when land was the basic measure of wealth – there’s a reason we still call it “real estate,” as though all other wealth is unreal – the power of the feudal nobility derived directly from their control of land. Today the governments that claim exclusive power to print and regulate money, and the banks and financial corporations that manage most of society’s money, derive much of their effective power from their control over the medium of economic exchange, and can be counted on to encourage the rest of society to rely ever more completely on the thing that gives them power.
These two factors can be traced in the history of most of the complex urban societies of the past. What makes our civilization something of an extreme case is a third factor – the extreme complexity of an economic system that has temporarily replaced the limited energy resources of other human societies with a torrent of cheap and abundant energy from fossil fuels.
Ilya Prigogine, one of the most innovative physicists of recent years, showed via a series of dizzyingly complex equations that the flow of energy through a system increases the complexity of the system. If there was ever any doubt of the accuracy of his claim, it was settled by the economic history of the western world from 1700 to the present. The societies over which the tsunami of the Industrial Revolution broke in the early 18th century were not unusually complex by the standards of past civilizations; their own contemporaries in the Chinese and Ottoman Empires considered western Europeans, and not without reason, to be grunting, smelly barbarians with few of the arts and graces of civilization.
Fossil fuels may not have done anything about the gracelessness and the smell, but it certainly made up for any shortage in complexity. Until the dawn of the industrial age, as a general rule of thumb, some 90% of the inhabitants of any complex society worked in agriculture, providing the food and raw materials that supported themselves as well as the 10% who could be spared for all other economic roles. By 1900, at the zenith of the age of coal, many nations in the industrial world had dropped the percentage of their work force in agriculture below 50%, and shifted the workers thus freed up into a broad assortment of new economic roles. By 2000, buoyed by the much higher concentration and efficiency of petroleum, many industrial nations had dropped the percentage of their work force in agriculture below 5%, with the other 95% filling newly invented roles in the most complex economies in the history of the planet.
One consequence of this swift and unprecedented surge in complexity was the triumph of money over all other systems of exchange. When the vast majority of workers at every income level labored at tasks so specialized that their efforts only produced value when combined with those of hundreds or thousands of other workers, money provided the only way they could receive a return on their labor. When most of the customers for any given product had money and nothing else to exchange for it, buying products for money became standard. Social networks of exchange – household economies, customary local exchanges, church and fraternal networks– shattered under the strain, and were replaced by purely economic relationships – wage labor, shopping, public assistance – that could be denominated entirely in cash. The last three centuries of social and economic history are largely a chronicle of the results.
If economists took a wider view of the history of their discipline than they generally do, they might have noticed that what most of them consider a fundamental feature of all economies worth studying – the centrality of money – is actually a unique feature of an economic era defined by cheap abundant energy. Since the fossil fuels that made that era possible are being extracted at a pace many times the rate at which new supplies are being discovered, current assumptions about the role of money in society may be in for a series of unexpected revisions.
In an ironic way, this process of revision may be fostered by the antics of the world’s industrial nations as they try to forestall the Great Recession by spending money they don’t have. The economic crisis that gripped the world in 2008 was primarily driven by a drastic mismatch between money and wealth. When the price of a rundown suburban house zoomed from $75,000 to $575,000, for example, the change marked a distortion in the yardstick rather than any actual increase in the wealth being measured. That distortion caused every economic decision based on it – for example, a buyer’s willingness to go over his head into debt to buy the house, or a bank’s willingness to lend money on the basis of imaginary equity – to suffer similar distortions. Now that the yardsticks have snapped back to something like their proper length, the results of the distortion have to be cleared out of the economy if the amount of money in the system is once again to reflect the actual amount of wealth.
Yet this is exactly what governments and businesses are doing their level best to forestall. Governments are scrambling to prop up economic activity at a pace the real wealth of their societies can no longer support; banks and businesses are doing everything in their power to divert attention from the fact that a great many of the financial assets propping up their balance sheets were never worth anything in the first place and now, if possible, are worth even less. Both are doing so by the simple expedient of spending money they don’t have. As government deficits worldwide spin out of control and the total notional value of the world’s derivatives market climbs steadily above one quadrillion dollars, the decoupling of money from wealth is even more extreme than it was at the height of the real estate bubble.......
Wednesday, October 7, 2009
SC96-10
http://www.globalresearch.ca/index.php?context=va&aid=15486
The Lying Game: Drum-beating for War against Iran
How we are prepared for another war of aggression
In his latest column for the New Statesman, John Pilger compares the current drum-beating for war against Iran, based on a fake "nuclear threat", with the manufacture of a sense of false crisis that led to invasion of Iraq and the deaths of 1.3 million people.
In 2001, the Observer in London published a series of reports that claimed an “Iraqi connection” to al-Qaeda, even describing the base in Iraq where the training of terrorists took place and a facility where anthrax was being manufactured as a weapon of mass destruction. It was all false. Supplied by US intelligence and Iraqi exiles, planted stories in the British and US media helped George Bush and Tony Blair to launch an illegal invasion which caused, according to the most recent study, 1.3 million deaths.
Something similar is happening over Iran: the same syncopation of government and media “revelations”, the same manufacture of a sense of crisis. “Showdown looms with Iran over secret nuclear plant”, declared the Guardian on 26 September. “Showdown” is the theme. High noon. The clock ticking. Good versus evil. Add a smooth new US president who has “put paid to the Bush years”. An immediate echo is the notorious Guardian front page of 22 May 2007: “Iran’s secret plan for summer offensive to force US out of Iraq”. Based on unsubstantiated claims by the Pentagon, the writer Simon Tisdall presented as fact an Iranian “plan” to wage war on, and defeat, US forces in Iraq by September of that year – a demonstrable falsehood for which there has been no retraction.
The official jargon for this kind of propaganda is “psy-ops”, the military term for psychological operations. In the Pentagon and Whitehall, it has become a critical component of a diplomatic and military campaign to blockade, isolate and weaken Iran by hyping its “nuclear threat”: a phrase now used incessantly by Barack Obama and Gordon Brown, and parroted by the BBC and other broadcasters as objective news. And it is fake.
On 16 September, Newsweek disclosed that the major US intelligence agencies had reported to the White House that Iran’s “nuclear status” had not changed since the National Intelligence Estimate of November 2007, which stated with “high confidence” that Iran had halted in 2003 the programme it was alleged to have developed. The International Atomic Energy Agency has backed this, time and again.
The current propaganda-as-news derives from Obama’s announcement that the US is scrapping missiles stationed on Russia’s border. This serves to cover the fact that the number of US missile sites is actually expanding in Europe and the “redundant” missiles are being redeployed on ships. The game is to mollify Russia into joining, or not obstructing, the US campaign against Iran. “President Bush was right,” said Obama, “that Iran’s ballistic missile programme poses a significant threat [to Europe and the US].” That Iran would contemplate a suicidal attack on the US is preposterous. The threat, as ever, is one-way, with the world’s superpower virtually ensconced on Iran’s borders.
Iran’s crime is its independence. Having thrown out America’s favourite tyrant, Shah Reza Pahlavi, Iran remains the only resource-rich Muslim state beyond US control. As only Israel has a “right to exist”in the Middle East, the US goal is to cripple the Islamic Republic. This will allow Israel to divide and dominate the region on Washington’s behalf, undeterred by a confident neighbour. If any country in the world has been handed urgent cause to develop a nuclear “deterrence”, it is Iran.
As one of the original signatories of the Nuclear Non-Proliferation Treaty, Iran has been a consistent advocate of a nuclear-free zone in the Middle East. In contrast, Israel has never agreed to an IAEA inspection, and its nuclear weapons plant at Dimona remains an open secret. Armed with as many as 200 active nuclear warheads, Israel “deplores” UN resolutions calling on it to sign the NPT, just as it deplored the recent UN report charging it with crimes against humanity in Gaza, just as it maintains a world record for violations of international law. It gets away with this because great power grants it immunity.
Obama’s “showdown” with Iran has another agenda. On both sides of the Atlantic the media have been tasked with preparing the public for endless war. The US/Nato commander General Stanley McChrystal says 500,000 troops will be required in Afghanistan over five years, according to America’s NBC. The goal is control of the “strategic prize” of the gas and oilfields of the Caspian Sea, central Asia, the Gulf and Iran – in other words, Eurasia. But the war is opposed by 69 per cent of the British public, 57 per cent of the US public and almost every other human being. Convincing “us” that Iran is the new demon will not be easy. McChrystal’s spurious claim that Iran “is reportedly training fighters for certain Taliban groups” is as desperate as Brown’s pathetic echo of “a line in the sand”.
During the Bush years, according to the great whistleblower Daniel Ellsberg, a military coup took place in the US, and the Pentagon is now ascendant in every area of American foreign policy. A measure of its control is the number of wars of aggression being waged simultaneously and the adoption of a “first-strike” doctrine that has lowered the threshold on nuclear weapons, together with the blurring of the distinction between nuclear and conventional weapons.
All this mocks Obama’s media rhetoric about “a world without nuclear weapons”. In fact, he is the Pentagon’s most important acquisition. His acquiescence with its demand that he keep on Bush’s secretary of “defence” and arch war-maker, Robert Gates, is unique in US history. He has proved his worth with escalated wars from south Asia to the Horn of Africa. Like Bush's America, Obama's America is run by some very dangerous people. We have a right to be warned. When will those paid to keep the record straight do their job?
The Lying Game: Drum-beating for War against Iran
How we are prepared for another war of aggression
In his latest column for the New Statesman, John Pilger compares the current drum-beating for war against Iran, based on a fake "nuclear threat", with the manufacture of a sense of false crisis that led to invasion of Iraq and the deaths of 1.3 million people.
In 2001, the Observer in London published a series of reports that claimed an “Iraqi connection” to al-Qaeda, even describing the base in Iraq where the training of terrorists took place and a facility where anthrax was being manufactured as a weapon of mass destruction. It was all false. Supplied by US intelligence and Iraqi exiles, planted stories in the British and US media helped George Bush and Tony Blair to launch an illegal invasion which caused, according to the most recent study, 1.3 million deaths.
Something similar is happening over Iran: the same syncopation of government and media “revelations”, the same manufacture of a sense of crisis. “Showdown looms with Iran over secret nuclear plant”, declared the Guardian on 26 September. “Showdown” is the theme. High noon. The clock ticking. Good versus evil. Add a smooth new US president who has “put paid to the Bush years”. An immediate echo is the notorious Guardian front page of 22 May 2007: “Iran’s secret plan for summer offensive to force US out of Iraq”. Based on unsubstantiated claims by the Pentagon, the writer Simon Tisdall presented as fact an Iranian “plan” to wage war on, and defeat, US forces in Iraq by September of that year – a demonstrable falsehood for which there has been no retraction.
The official jargon for this kind of propaganda is “psy-ops”, the military term for psychological operations. In the Pentagon and Whitehall, it has become a critical component of a diplomatic and military campaign to blockade, isolate and weaken Iran by hyping its “nuclear threat”: a phrase now used incessantly by Barack Obama and Gordon Brown, and parroted by the BBC and other broadcasters as objective news. And it is fake.
On 16 September, Newsweek disclosed that the major US intelligence agencies had reported to the White House that Iran’s “nuclear status” had not changed since the National Intelligence Estimate of November 2007, which stated with “high confidence” that Iran had halted in 2003 the programme it was alleged to have developed. The International Atomic Energy Agency has backed this, time and again.
The current propaganda-as-news derives from Obama’s announcement that the US is scrapping missiles stationed on Russia’s border. This serves to cover the fact that the number of US missile sites is actually expanding in Europe and the “redundant” missiles are being redeployed on ships. The game is to mollify Russia into joining, or not obstructing, the US campaign against Iran. “President Bush was right,” said Obama, “that Iran’s ballistic missile programme poses a significant threat [to Europe and the US].” That Iran would contemplate a suicidal attack on the US is preposterous. The threat, as ever, is one-way, with the world’s superpower virtually ensconced on Iran’s borders.
Iran’s crime is its independence. Having thrown out America’s favourite tyrant, Shah Reza Pahlavi, Iran remains the only resource-rich Muslim state beyond US control. As only Israel has a “right to exist”in the Middle East, the US goal is to cripple the Islamic Republic. This will allow Israel to divide and dominate the region on Washington’s behalf, undeterred by a confident neighbour. If any country in the world has been handed urgent cause to develop a nuclear “deterrence”, it is Iran.
As one of the original signatories of the Nuclear Non-Proliferation Treaty, Iran has been a consistent advocate of a nuclear-free zone in the Middle East. In contrast, Israel has never agreed to an IAEA inspection, and its nuclear weapons plant at Dimona remains an open secret. Armed with as many as 200 active nuclear warheads, Israel “deplores” UN resolutions calling on it to sign the NPT, just as it deplored the recent UN report charging it with crimes against humanity in Gaza, just as it maintains a world record for violations of international law. It gets away with this because great power grants it immunity.
Obama’s “showdown” with Iran has another agenda. On both sides of the Atlantic the media have been tasked with preparing the public for endless war. The US/Nato commander General Stanley McChrystal says 500,000 troops will be required in Afghanistan over five years, according to America’s NBC. The goal is control of the “strategic prize” of the gas and oilfields of the Caspian Sea, central Asia, the Gulf and Iran – in other words, Eurasia. But the war is opposed by 69 per cent of the British public, 57 per cent of the US public and almost every other human being. Convincing “us” that Iran is the new demon will not be easy. McChrystal’s spurious claim that Iran “is reportedly training fighters for certain Taliban groups” is as desperate as Brown’s pathetic echo of “a line in the sand”.
During the Bush years, according to the great whistleblower Daniel Ellsberg, a military coup took place in the US, and the Pentagon is now ascendant in every area of American foreign policy. A measure of its control is the number of wars of aggression being waged simultaneously and the adoption of a “first-strike” doctrine that has lowered the threshold on nuclear weapons, together with the blurring of the distinction between nuclear and conventional weapons.
All this mocks Obama’s media rhetoric about “a world without nuclear weapons”. In fact, he is the Pentagon’s most important acquisition. His acquiescence with its demand that he keep on Bush’s secretary of “defence” and arch war-maker, Robert Gates, is unique in US history. He has proved his worth with escalated wars from south Asia to the Horn of Africa. Like Bush's America, Obama's America is run by some very dangerous people. We have a right to be warned. When will those paid to keep the record straight do their job?
SC96-9
http://www.ricefarmer.blogspot.com/
"Recession” Trigger"
Here we have an account of a speech given by economist Jeff Rubin. Many people are now aware of his message that the world will undergo wrenching and momentous change in the near future due to the spiking of oil prices. Of particular interest was his assertion that “oil prices, and not sub-prime mortgages, caused the current global recession.” Although the accepted wisdom is that the subprime mortgage debacle triggered the world recession (here in Japan the term “Lehman shock” is used to name the event believed to have triggered the recession), I have to agree with Rubin that this explanation amounts to barking up the wrong tree. Clearly, the world economy as we know it cannot function long with oil in the triple digits.
The simplistic explanation that subprime debt was the trigger ignores the role of cheap energy in creating the global debt bubble. Specifically, cheap energy fueled economic growth, and the promise of continuing growth underwrote all the debt. If sizzling economic growth had continued, a high percentage (certainly not all) of the subprime borrowers could have been expected to pay off their debts. Of course there was a lot of greed, and much overreach, but that too was goosed by the expectation of continued expansion. When $147/bbl oil crashed the economy, the debt bubble had to collapse because it had been kept inflated by the expectation of continued growth.
Unfortunately, the belief in growth still dominates. Governments spill the red ink with abandon for “stimulus” programs in the expectation that the world economy will mend itself and get back to expanding, which (in theory) would make it possible to pay off all that debt, with interest. In reality, no person in his or her right mind would believe that this much debt could be paid off. Without a doubt, it is just a matter of time until massive worldwide defaults begin.
Finally, there is debate on whether to call this a recession or a depression, but that argument is misplaced. What we are seeing is the beginning of the end for industrial civilization — unless, of course, a cheap and highly dense form of energy can be found. Good luck.
"Recession” Trigger"
Here we have an account of a speech given by economist Jeff Rubin. Many people are now aware of his message that the world will undergo wrenching and momentous change in the near future due to the spiking of oil prices. Of particular interest was his assertion that “oil prices, and not sub-prime mortgages, caused the current global recession.” Although the accepted wisdom is that the subprime mortgage debacle triggered the world recession (here in Japan the term “Lehman shock” is used to name the event believed to have triggered the recession), I have to agree with Rubin that this explanation amounts to barking up the wrong tree. Clearly, the world economy as we know it cannot function long with oil in the triple digits.
The simplistic explanation that subprime debt was the trigger ignores the role of cheap energy in creating the global debt bubble. Specifically, cheap energy fueled economic growth, and the promise of continuing growth underwrote all the debt. If sizzling economic growth had continued, a high percentage (certainly not all) of the subprime borrowers could have been expected to pay off their debts. Of course there was a lot of greed, and much overreach, but that too was goosed by the expectation of continued expansion. When $147/bbl oil crashed the economy, the debt bubble had to collapse because it had been kept inflated by the expectation of continued growth.
Unfortunately, the belief in growth still dominates. Governments spill the red ink with abandon for “stimulus” programs in the expectation that the world economy will mend itself and get back to expanding, which (in theory) would make it possible to pay off all that debt, with interest. In reality, no person in his or her right mind would believe that this much debt could be paid off. Without a doubt, it is just a matter of time until massive worldwide defaults begin.
Finally, there is debate on whether to call this a recession or a depression, but that argument is misplaced. What we are seeing is the beginning of the end for industrial civilization — unless, of course, a cheap and highly dense form of energy can be found. Good luck.
SC96-8
http://www.postcarbon.org/commentary/half_full_half_empty
Is the Global Oil Tank Half-full, Is It Half-Empty...Or Are We Running On Fumes?
In his article in the New York Times September 24, “Oil Industry Sets a Brisk Pace of New Discoveries”, staff reporter Jad Mouawad cites oil discoveries totaling ten billion barrels for the first half of 2009. The Tiber field in the Gulf of Mexico alone accounts for four to six billion barrels of crude that may eventually find its way into the world oil system. Indeed, this year has seen discovery results that could end up being the best since 2000. But, the article notes, the new oil was expensive to find, it will be expensive to extract, and both exploration and production are only possible because of high levels of investment and sophisticated, expensive new technologies.
To justify the needed level of effort, the oil industry requires prices in excess of $60 per barrel, according to Mouawad; otherwise, the new projects will turn out to be money-losers. Some analysts believe the magic break-even number is closer to $70. In any case, the figure is much higher than was required only a few years ago, and still-higher prices may be necessary to make exploration and production profitable for future projects—prices perhaps close to $80.
According to Mouawad, "While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder." So the new discoveries presumably indicate that peak oil has been delayed, and that our concerns about the event have been misplaced.
Yet this would be a strange conclusion to draw from the facts cited, for two reasons.
First: The ten billion barrels of new discoveries reported so far do initially sound encouraging: if the second half of 2009 is as productive, that means a total of 20 billion barrels of new oil will eventually be available to consumers as a result of discoveries this year. But how much oil does the world use annually? In recent years, that amount has hovered within the range of 29-31 billion barrels. Therefore (assuming continued good results throughout 2009), in its most successful recent year of exploration efforts, the oil industry will have found only two-thirds of the amount it extracted from previously discovered oilfields.
When the "ten billion barrels" figure is framed this way, its "gee whiz: shimmer quickly fades. (Yes, the article discusses the phenomenon of "reserve growth," which is supposed to render the pace of new discoveries less important—but that red herring has been exposed plenty of times, including here www.theoildrum.com/node/5811.) The Times article hints that 2009's high discovery rate may be the beginning of a new trend, so that we may see even better rates in future years; but remember, that hypothetical outcome hinges on a crucial factor—increasing investment in exploration and production—which leads us to a second critical thought.
The staggering levels of investment that enabled drilling in miles of ocean water, so as to achieve the 2009 finds, were occasioned by historic petroleum price run-ups from 2004 to 2008—with prices eventually spiking high enough to cripple the auto industry, the airlines, and global trade. As petroleum prices climbed ever higher, oil companies saw sense in drilling test wells in risky, inhospitable places. But in recent decades oil price spikes have repeatedly triggered recessions. And clearly, as we all discovered rather forcibly last year, the global economy cannot sustain an oil price of $147 a barrel: as the economy crashed in the latter months of 2008, so did oil demand and oil prices (which hit a low in December-January near $30).
So, what is a sustainable price? A review of recent economic history yields the observation that when petroleum sells above about $80 a barrel (in inflation-adjusted terms) the economy begins to stall. Oil industry wags have begun to speak of a "Goldilocks" price range of $60 to $80 a barrel (not too high, not too low—just right!) as the prerequisite for economic recovery (www.nytimes.com/2009/09/10/business/energy-environment/10opec.html). If prices are higher, the economy sputters, reducing oil demand and subsequently seriously undermining prices; if they drift lower, not enough investment will go toward exploration and production, so that oil shortages and price spikes will become inevitable a few years hence (indeed, since the oil price crash of late 2008 over $150 billion of investments in new oil projects have been cancelled). If the market can keep prices reliably within that charmed $60 to $80 range, all will be well. Too bad that petroleum prices have grown extremely volatile in recent years: we must hope and pray that trend is over (though there's no apparent reason to assume that it is).
Let me summarize: the industry needs oil prices that are both stable and near economy-killing levels in order to justify investments necessary to possibly replace depleting reserves and overcome declining production in existing oilfields (I say “possibly” because we have insufficient evidence as yet to conclusively show that new discoveries enabled by expensive new exploration and production technologies can offset declines in the world's aging giant oilfields).
Should this picture lead the viewer to come away with reassured thoughts of "No worries, happy motoring?" Or does this look more like a portrait of peak oil?
Several commentators (including analysts with financial services company Raymond James Associates and Macquarie, the Australian-headquartered investment bank) have concluded from recent petroleum statistics that global oil production peaked in 2008. Macquarie is saying that world production capacity is peaking this year, which is a nuanced way of saying the same thing, since currently production is constrained more by depressed demand than by immediate shortfalls in supply; in effect both organizations assert that the world will never see higher rates of extraction than the so-far record level of July 2008.
I see nothing in the recent discovery data that should call that conclusion into doubt.
Is the Global Oil Tank Half-full, Is It Half-Empty...Or Are We Running On Fumes?
In his article in the New York Times September 24, “Oil Industry Sets a Brisk Pace of New Discoveries”, staff reporter Jad Mouawad cites oil discoveries totaling ten billion barrels for the first half of 2009. The Tiber field in the Gulf of Mexico alone accounts for four to six billion barrels of crude that may eventually find its way into the world oil system. Indeed, this year has seen discovery results that could end up being the best since 2000. But, the article notes, the new oil was expensive to find, it will be expensive to extract, and both exploration and production are only possible because of high levels of investment and sophisticated, expensive new technologies.
To justify the needed level of effort, the oil industry requires prices in excess of $60 per barrel, according to Mouawad; otherwise, the new projects will turn out to be money-losers. Some analysts believe the magic break-even number is closer to $70. In any case, the figure is much higher than was required only a few years ago, and still-higher prices may be necessary to make exploration and production profitable for future projects—prices perhaps close to $80.
According to Mouawad, "While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder." So the new discoveries presumably indicate that peak oil has been delayed, and that our concerns about the event have been misplaced.
Yet this would be a strange conclusion to draw from the facts cited, for two reasons.
First: The ten billion barrels of new discoveries reported so far do initially sound encouraging: if the second half of 2009 is as productive, that means a total of 20 billion barrels of new oil will eventually be available to consumers as a result of discoveries this year. But how much oil does the world use annually? In recent years, that amount has hovered within the range of 29-31 billion barrels. Therefore (assuming continued good results throughout 2009), in its most successful recent year of exploration efforts, the oil industry will have found only two-thirds of the amount it extracted from previously discovered oilfields.
When the "ten billion barrels" figure is framed this way, its "gee whiz: shimmer quickly fades. (Yes, the article discusses the phenomenon of "reserve growth," which is supposed to render the pace of new discoveries less important—but that red herring has been exposed plenty of times, including here www.theoildrum.com/node/5811.) The Times article hints that 2009's high discovery rate may be the beginning of a new trend, so that we may see even better rates in future years; but remember, that hypothetical outcome hinges on a crucial factor—increasing investment in exploration and production—which leads us to a second critical thought.
The staggering levels of investment that enabled drilling in miles of ocean water, so as to achieve the 2009 finds, were occasioned by historic petroleum price run-ups from 2004 to 2008—with prices eventually spiking high enough to cripple the auto industry, the airlines, and global trade. As petroleum prices climbed ever higher, oil companies saw sense in drilling test wells in risky, inhospitable places. But in recent decades oil price spikes have repeatedly triggered recessions. And clearly, as we all discovered rather forcibly last year, the global economy cannot sustain an oil price of $147 a barrel: as the economy crashed in the latter months of 2008, so did oil demand and oil prices (which hit a low in December-January near $30).
So, what is a sustainable price? A review of recent economic history yields the observation that when petroleum sells above about $80 a barrel (in inflation-adjusted terms) the economy begins to stall. Oil industry wags have begun to speak of a "Goldilocks" price range of $60 to $80 a barrel (not too high, not too low—just right!) as the prerequisite for economic recovery (www.nytimes.com/2009/09/10/business/energy-environment/10opec.html). If prices are higher, the economy sputters, reducing oil demand and subsequently seriously undermining prices; if they drift lower, not enough investment will go toward exploration and production, so that oil shortages and price spikes will become inevitable a few years hence (indeed, since the oil price crash of late 2008 over $150 billion of investments in new oil projects have been cancelled). If the market can keep prices reliably within that charmed $60 to $80 range, all will be well. Too bad that petroleum prices have grown extremely volatile in recent years: we must hope and pray that trend is over (though there's no apparent reason to assume that it is).
Let me summarize: the industry needs oil prices that are both stable and near economy-killing levels in order to justify investments necessary to possibly replace depleting reserves and overcome declining production in existing oilfields (I say “possibly” because we have insufficient evidence as yet to conclusively show that new discoveries enabled by expensive new exploration and production technologies can offset declines in the world's aging giant oilfields).
Should this picture lead the viewer to come away with reassured thoughts of "No worries, happy motoring?" Or does this look more like a portrait of peak oil?
Several commentators (including analysts with financial services company Raymond James Associates and Macquarie, the Australian-headquartered investment bank) have concluded from recent petroleum statistics that global oil production peaked in 2008. Macquarie is saying that world production capacity is peaking this year, which is a nuanced way of saying the same thing, since currently production is constrained more by depressed demand than by immediate shortfalls in supply; in effect both organizations assert that the world will never see higher rates of extraction than the so-far record level of July 2008.
I see nothing in the recent discovery data that should call that conclusion into doubt.
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