Moon of Alabama Brecht quote
June 16, 2008

Oil Prices - Get Used To It.

The Saudis allegedly said they will produce more oil and promptly oil hits $140/barrel.

U.S. refiners don't want more Saudi Oil saying it is too pricy. If the journos were knowledgeable they would point out that U.S. refiners simply can not refine the sulphur heavy stuff the Saudis peddle as additional capacity.

This hapless UN idiot Ban Ki-moon was the one who brought the original message of increased Saudi oil production. Like usual, he has no idea of the real problems. He is now announcing even more of unusable Saudi spice. Is that in his job description?

Pat Lang thinks the Saudis are angry at the "west" and keep production down for that reason. Maybe that is part of the story, but I do not believe it is the main issue.

There is population growth on this planet - fed by and demanding oil.
There is too little additional supply possible for now to feed that demand.
There is too little refinery capacity to make use of marginal quality stuff.
There are too many conflicts in the producing areas to allow additional supply.
There is like always a lot of speculation that exacerbates price moves.

In short: Get used to it.

$250 a barrel by next June would be a slower increase in price than last years surge. 

That's a positive sign, isn't it?

Meanwhile many people will die because we covert food into gas.

Posted by b on June 16, 2008 at 19:11 UTC | Permalink

Comments

US Crude Imports in April Down 2.5% Vs Year Ago

U.S. crude oil imports in April rose 3% from March, but were 2.5% below a year-ago, preliminary data from the Energy Information Administration released Friday show.

At 9.921 million barrels a day, crude imports were the most in any month since January, but were the lowest in April since 2006.

For the 26th straight month, Canada was the top source of crude imports for the U.S., the world's biggest oil consumer. Shipments from Canada averaged 1.952 million barrels a day, up 8.7% from a month ago and the most since September 2007.
...
Saudi Arabia, the world's largest oil exporter, was the second biggest source of U.S. crude imports in April, at 1.453 million barrels a day, down 0.5% from March and little changed from a year ago, but the lowest level since October 2007.

Mexico ranked as the third biggest crude supplier, with volumes inching up in April to 1.259 million barrels a day, the most since November 2007. Still with output falling in its major Cantarell oil field, imports were 13.8% below a year ago. March imports from Mexico were the weakest since September 2002, and down 24% from a year ago.

For the fourth straight month, Nigeria topped Venezuela as the fourth biggest crude supplier. despite a slight 0.3% month-to-month drop. Imports from Nigeria were up 25% from a year ago, but the flow remains erratic due to unrest in the Delta producing region, which has forced output cuts.

Crude imports from Venezuela rose 161,000 barrels a day on the month, to 1.019 million barrels a day, but lagged the year-ago level by nearly the same amount.

Imports from Venezuela in March were the least since February 2003, as Venezuela has banned sales to Exxon Mobil Corp. after a dispute over nationalization of oil facilities. Venezuela has said it is actively pursuing diverting exports to China, the world's second-biggest oil consumer.

Posted by: b real | Jun 16 2008 19:58 utc | 1


When we talk about the real demand for oil, we're talking about the numbers of barrels of oil the world economy needs every day in order to run.

That number is more or less about 87 million barrels per day. So, 87 million barrels per day, more or less, is what the world, at the moment, really "demands" on a daily basis.

87 million barrels a day is more or less what the world produces or supplies because that's what the world really asks for.

Enter the imperialist thieves ... mostly investment banks, hedge funds, oil companies, other institutional investors, and some big individual players ... operating through floor traders at the three major petroleum exchanges (New York Mercantile Exchange, London Petroleum Exchange (owned by US imperialists) and Singapore Stock Exchange which is much smaller than the other two.

These imperialist thieves submit orders for oil to these exchanges. These orders are called, among other things, "futures" and they represent at least 15 times greater volume than what the world really "demands" or wants; thus, artificially creating a staggering but bogus imbalance between supply and demand for oil.

This multiple of about 15 is not real demand, rather it is a phony "paper" demand, creating an illusory imbalance between supply and demand, pumping up the price of oil.

15 X 87 million bpd = 1,300,000,000 bpd

So, on "paper," the three petroleum markets are "demanding" 1.3 billion barrels everyday when the world only needs or demands 87 million barrels a day - and the price of a barrel soars.

If the world could or would produce 1.3 billion barrels a day, the world would drown in oil. There would be no place to put it.

This oil scam demonstrates the irrationality of the so-called "free" market, but the imperialist thieves make a killing everyday in this "free" market for oil.

fwiw The Great Scam

Posted by: jcairo | Jun 16 2008 19:59 utc | 2

"Meanwhile many people will die because we covert food into gas."

The corn folks have that covered. Almost. They have a bill before the House, subsidizing the conversion of ethanol into corn. I say almost, as there is a rider that it cannot be consumed, lest there is a hick-up in this perpetual profit scam.

Posted by: erichwwk | Jun 16 2008 20:04 utc | 3

There is population growth on this planet - fed by and demanding oil.


"Read Malthus. It is never safe to laugh at Dr. Malthus; he always has the last laugh." (from The Moon Is A Harsh Mistress by Robert Heinlein)

Posted by: Cloud | Jun 16 2008 21:31 utc | 4

When the Rev Malthus lived mankind had just discovered that it could do without Nature and that everything political philosophical religious developed within another sphere of reality called Economy. Attention was paid to economic reasons and Nature was despoiled. The twist now is that Nature is much more important than Economics, actually one suspects that Economics is merely spin, justifying the rape of the planet. The only value currencies have is their relationship to actual natural goods. Nature has taken her revenge.

Posted by: jlcg | Jun 16 2008 22:49 utc | 5

Why not throw the UN a bone? By making a meaningless* concession to them, one that was withheld from the Confederate States of America, the Saudis can promote multilateralism. If all goes well, Ban ki-Moon and the princes will share the unearned credit when financial crisis and declining velocity of money finally sink the oil price.

* meaningless because production is still constrained by static storage, so investment is nothing more than exercise of an option.

Posted by: ...---... | Jun 16 2008 23:00 utc | 6

The inherent flaws in participatory democracies are revealed again. I'm sure for decades MoA habitues, just like other humanists and mother earth-ists ,have been informing their fellow humans the finite supply of oil is running out, just as they have been telling other peeps of probable environmental collapse, a consequence of the greenhouse effect.

At first when we talked this stuff, we were ridiculed and shouted down- par for the course we thought, "all we need to do is a bit of education then the peeps will understand" we thought.

Only thing is; while we were edumacating other peeps, the usual suspects who had also checked the facts, stalled any change until the time was ripe, until then, they set about getting their ducks in a row.

The Bliar /Gore "global warming is real" bandwagon is a classic example of open manipulation. Suddenly the fantasy (in mainstream pols and the media's parlance) of global warming became a reality. The entire debate was suborned by the crooks and liars just as they developed means to profit from the new paradigm (global warming is the No1 problem folks which isn't even necessarily true we could be dead from any one of hundred of toxins used in manufacturing first but that discussion has gone; just as all other environmental issues are ignored in favour of the 'accepted' take on global warming). That accepted take includes the grow energy, starve the poor scam. A great money spinner which does nothing about global warming, but it does ensure that energy corporations and their comrades in the mass foods industry make substantial increases in profits.

What some peeps refer to as 'peak oil' has been dealt to in a more underhand way using distraction.

While the environmental cassandras were talking about the likely problems arising from wasteful use of hydrocarbon resources, it seemed few paid heed. Even now the amerikan political establishment hasn't actually acknowledged that the world is on the 'down-side' of the available hydrocarbon curve, that more hydrocarbons have already been used than are available for future use. Instead they have used the reality to develop a system so the declining availability makes money for them.

I look at the country I live in, where the pols have been dragging their feet since Kyoto was ratified last century. They finally got legislation in place to meet out obligations under Kyoto.

A major part of the program was putting a tax on energy hydrocarbons which would then be used to develop better public transport and alternative sustainable energy sources (all the usual stuff) About 80% of NZ's power generation comes from hydro schemes so the aim was to mothball the oil burners which supplied the 20% then replace them with wind and tide generators.

The increase in gas (petrol and CNG) prices was necessary to cut usage and make alternatives viable. Yet right at the moment the world was moving to these models, the assholes have stepped in and put up prices in a way that they cop the increases in the price of hydrocarbon energy by jacking up the 'cost' of a barrel of crude.
I have already linked to this Business week article which systematically demolishes the canards spread by pols and the media to support their contention that this price rise is a consequence of increased demand. eg
". . . Chinese consumption is expected to rise this year by only 400,000 b/d—hardly the "surging oil demand" usually blamed on China in the media. Last year China imported 3.2 million barrels per day, and its estimated usage was around 7 million b/d total. The U.S., by contrast, consumes around 20.7 million b/d. . . "

Very quickly the media and political plants began to ask about the effect of the proposed petrol tax increases.

So the govt here backed down there will be no new tariff on oil to subsidise alternatives.

We have been gazumped on 'peak oil' just as humanists and planet earthists were gazumped on global warming.

It is virtually impossible to be heard above the background cacophony as 'experts' most of whom were denying the possibility of either climate change or a reducing hydrocarbon availability two years ago, prattle , shout whine, entreat the most self serving, confusing bullshit they can muster up.

In a couple of years when the world has been segue'd on to other more 'interesting issues' like whether celebrities should be allowed to shoot paparazzi or something equally riveting, hydrocarbon energy prices will probably have declined somewhat, (tho there still won't be any surcharges paying for the damage that burning fuel causes or subsidising sustainable energy forms) and the planet will still be simmering, but it will be impossible to engage any serious debate on either issue as they will be deemed to be "so last year" and peeps will have been fully conditioned to understand that sort of discussion is dangerous. They will have come to believe such talk causes insane price rises.
Game set and match to the greedheads.

Posted by: Debs is dead | Jun 16 2008 23:06 utc | 7

We are in Kandahar right now, and things are real bad. Particularly after the Kandahar prison break. More than a 1000 criminals are on the streets now and 400 Taliban are taking control over all of Arghandab, Zari, Dand and Maiwand district. The whole city is surrounded, and the word is that they may be attacking the city itself. It is past midnight right now and there are heavy fighting in the surroundings districts. Afghan Army, NATO forces and Taliban. One fact though, it is most dangerous time than any before. People are at shock not knowing what to make out of all this open warfare. I am speechless to think this shame for the Afghan Government and the 43 NATO and ISAF countries and their 20,000 troops in country. They are over taken by a few 100 Taliban thugs, one really has to give them credit to their braveness in making the prison break. Hope the US doesn't heli gunship and UAV slaughter everyone innocents with SAWs and Hellfire.

Posted by: Barnacle Bill | Jun 17 2008 0:09 utc | 8

BARNACLE,
in the past week the Government of Canada has formally apologized to the Fist Nations' People for the residential schools - essentially a program of tearing young Natives from families and bands and placing them in residential schools in order to integrate them into white western society. Most of these schools were operated by Christian Orders with virtually no oversight. The unfolding stories of physical and sexual abuse, and humiliation of customs and traditions, have been known for some time.

Finally a formal apology.

What are we doing in Afghanistan other than repeating this same arrogance? "The Afgans are a backwards, primitive, tribal people and they deserve the privilage of our western civilization and parlimentary democracy - and by-god they're going to embrace it."

Now send in the pedophile priests.

Posted by: Allen/Vancouver | Jun 17 2008 2:37 utc | 9

BARNACLE,
in the past week the Government of Canada has formally apologized to the Fist Nations' People for the residential schools - essentially a program of tearing young Natives from families and bands and placing them in residential schools in order to integrate them into white western society. Most of these schools were operated by Christian Orders with virtually no oversight. The unfolding stories of physical and sexual abuse, and humiliation of customs and traditions, have been known for some time.

Finally a formal apology.

What are we doing in Afghanistan other than repeating this same arrogance? "The Afgans are a backwards, primitive, tribal people and they deserve the privilage of our western civilization and parlimentary democracy - and by-god they're going to embrace it."

Now send in the pedophile priests.

Posted by: Allen/Vancouver | Jun 17 2008 2:39 utc | 10

re ban's role - nothing particularly enlightening, but since i spent the time reading the damn transcript...

from the u.n.'s daily press briefing monday

Question: There are reports from Saudi Arabia, actually they quote your associate Farhan Haq in saying there will be an increase in output of 200,000 barrels a day. Does the Secretary-General take credit for that? Did he convince the Saudis to increase output?

Spokesperson: No, it was just information he relayed to the press. I have what he said. He said that the Saudi oil minister told him that Saudi Arabia had increased its production by 300,000 barrels from May to June and would increase it again by 200,000 barrels from June to July. This is what the Secretary-General said, relaying information given to him by the Saudi oil minister. And by July, production should be at 9.7 million barrels.

Question: So because he raised the same issue with the King, can we assume it was because of his request?

Spokesperson: We cannot assume anything, but I think it was a very productive meeting. That’s all I can say.

...

Question: To follow up on the question regarding Mr. Ban Ki-moon and the hiking of the oil prices, does he really believe the rising of oil prices, that one reason for it is due to a shortage of oil production?

Spokesperson: There is no doubt. It’s a law of the market. If there is more production, the prices are supposed to go down.

Question: But the question is, does he believe that it is because the oil-producing countries do not produce enough oil in the market?

Spokesperson: As I said, it’s a market rule. I don’t think the Secretary-General has any special opinion on that.

Question: There was a report even before the Secretary-General met with the Saudi King, in The New York Times it said the Saudis had already agreed to increase oil production. Was the Secretary-General speaking in light of that report or he already knew this was going to happen?

Spokesperson: As I said, we had 300,000 barrels from May to June, so it was already done. There was an increase in production already. Now there is a new increase in production from June to July, and it’s going to be 200,000 barrels.

...

Question: ... around the same question of oil production. In the era of climate change and peak oil and all these issues, an increase in oil production doesn’t seem to deal with the systemic issues in the market. If the Secretary-General is indeed supporting this Saudi move, is he not supporting a band-aid solution to a much more common problem?

Spokesperson: He is aware that it is much more comprehensive than that, and he has discussed the other implications of the issue, the impact on the food crisis. He has been discussing this for a long time. It was one of the subjects that was discussed at the Rome meeting when they were discussing food and the impact of oil prices. Of course, he says, and he has been saying it over and over, there has to be a comprehensive approach to those different problems because they are part of one entity.

Posted by: b real | Jun 17 2008 4:02 utc | 11

Solution to oil is very simple: GROW HEMP!!!

Posted by: BAJ | Jun 17 2008 4:03 utc | 12

jcairo is bang on.

And there's another Enron bubbling just below the surface as well, more Texas Tea.
For decades the American people, through their thieving Congress, gave Big Oil huge tax incentives (and still do, recently refusing to end the dole) so Big Oil would **produce low-sulfur refined products**, reducing air pollution and acid rain, and allowing the refining of more prevalent high-sulfur crude supplies like tar sands.

Instead, instead, BigOil **pocketed those tax incentives** for their corporate balance sheet, so principals and investors could boost the value of their stock options and bonus packages. Instead of investing in desulfurization plant and equipment available since the 1980s, Big Oil bought up sweet Saudi crude futures.

That's what Peak Oil refers to. The theft of the low-hanging fruit. Refiners that were producing at 115% of certified capacity in the 1990s are producing only at 85% today using sweet crude. With egregious profits, it boosts the balance sheet more to cut production costs by slowing down, by layoffs, by delayed deferred maintenance, by keeping low inventories, especially with the all-time record oil prices.

States are complicit, they want higher refined prices too, it brings in more gas tax.
NYC, WADC, Houston, Riyadh and your local state capitol want to see you slaughtered.
Pure, deliberate, egregious fraud, direct pipeline from public tax coffers to private bank vaults, and they are STILL getting away with it, right now today, right down to the vote last week to keep the tax incentives in place, pumping our life savings down to Houston, even in this egregiously huge profit environment, tax incentives!

Debs, "the increase in gas (petrol and CNG) prices was necessary to cut usage and make alternatives viable." Whiskey Tango Foxtrot?! Bush.Con cut tax incentives for alternate energy, and keeps pushing at AWAR and nuclear. There are solar farms in California and Arizona for miles, wind turbines across every windswept plateau, and hydro in every last available rivulet, it's only a tiny fraction of our energy use.

The world is swimming in hydrocarbons, you can't give high-sulfur tar sands away, even at $140/bbl. And there is so much natural gas, trillions and trillions worth, they've simply been flaring it off at the well head *for a century* as a nuisance!
There's your global warming, flaring a bazillion cubic feet of gas at the well head!

By any metric it's now runaway. China just stopped exporting hydrocarbons Friday,
like grains, everyone is closing up, protecting their natural resources from theft.
The Saudis can't pump any faster without stranding the sweet crude and bringing a disaster none could imagine. Instead they offer sour high-sulfur crude, and people wonder why their engines act up and their fuel gauges stop working. $200/bbl soon.

All because Big Oil never spent the tax incentives we lent them on desulfurization!
$100B's, a dozen Enrons, all in plain view, with full knowledge of the Executive.
Where is our low-sulfur tax rebate!! BIG OIL OWES US OUR TAX INCENTIVES BACK, WITH INTEREST AND LOST OPPORTUNITY COST!! What do we get? Nada. 'Iran the Evil Empire'.
Our President and Vice President are arch war criminals and master embezzlers. How
did Dick Cheney get $600M in the bank on a vice president's $175,000 a year salary?!

jcairo is dead bang on. We have a thief in the Oval Office, and Congress driving the getaway car. Big Oil and Defense will destroy America as surely as a plague of rats.
Where is our Pied Piper, our Che Guevara, among this rabble of Peak Theorists and media sycophants with their hands in our back pockets, and their tins in our ears?

Face it, the NeoZi.con's goal is a dualist world of vampiroyals, and bled-out plebs.

Learn, or toast.

Posted by: Bulia Base | Jun 17 2008 5:42 utc | 13

jcairo@2,
the article linked is absolutely spot on. If ever there was a case of the tail wagging the dog, its that of todays oil futures market being utilized as the global unanimous source of price discovery for crude, gasoline, diesel ...

its a hugely artificialized market. And the factor of 15 used in the article to indicate the gross level of imbalance between the "futures market" and the real world is actually highly conservative because it premises that all oil producers/consumers actually participate in the futures market. In the real world, this is not and has never been the case.

Posted by: jony_b_cool | Jun 17 2008 6:47 utc | 14

For the novelty of it all...

Youtube: 3 Days of Condor: US plans for invading ME

Also see, these articles...

The oil era reaches its desperate endgame



IT'S WAY BEYOND PAIN AT THE PUMP: PEAK OIL AND ELECTRICITY

While waiting to see how the contest between a demand-killing recession and shrinking oil stockpiles plays out, it might be worthwhile to spend a little time reviewing the world’s electricity situation. If there is any form of energy that would be sorely missed by people who had once had it, electricity would be it.

Private cars we could do without, but not our lights and appliances. Most of us here in America have been blessed to have an unlimited amount of electricity for all of our adult lives. There are very few left who can remember a time when it was not universally available.

Although it has received scant coverage in the U.S. media, in many parts of the world, the electric grids are shutting down for long periods each day. In a few places the electricity is now off most of the time. Some of this is due to droughts which have reduced the hydroelectric generating capacity in many parts of the world. Some is due to the price of oil which has simply become too expensive to use in thermoelectric generating stations and in a few places the electricity is out or has been greatly reduced because of civil strife. Iraq, Nigeria, Gaza and Pakistan are the most prominent instances of the latter. Even the climate has contributed to the problem as a wave of unusually cold weather has enveloped the Middle East, Central Asia and Siberia, forcing many to use electric heat as their only means of survival.

Just to clarify, I don't completely subscribe to the peek oil theory, nor do I disbelieve, seemingly, the jury is still out for me, but nonetheless, much can be gleaned from the never ending stream of data-palooza.

Posted by: Uncle $cam | Jun 17 2008 9:25 utc | 15

Barnieboy,

you see: if those prisoners had been sent to Guantanamo instead of an Afghani prison, they would not be out terrorizing people on the streets...

Posted by: ralphieboy | Jun 17 2008 9:35 utc | 16

this humble messenger is hardly worthy of such praise, all of which belongs to the author of that fine cogent argument

Allen @10 (he said like a kindly Irish cop), now don't be goin and blamin endless centuries of child rape on just the Father Nelson's of this beautiful blue marble.

The presbyterian minister that married the good lady wife and I, it seems, diddled three boys. As I found out, flipping through the local fascist, fish-wrap while at work, six years later.

I still have the article. It is in the humour file with all the line drawings of Mohammed banging male camels from behind. At least he's Christian enough to "reach around"...

The good lady wife tells me there is talk of taxing "regular" gas because it is dirty. I presume to put it on par $$ with the higher grades and force people to the higher "cleaner" grades. I thought the grading was more aboot octane

why not make OilCo clean it (sulphur, I presume) up? 8{)

Posted by: jcairo | Jun 17 2008 9:52 utc | 17

from Uncle's "desperate endgame" link @15

"There is little doubt that speculation is playing some part in pushing up the price of oil to an unprecedented $140 a barrel."

Some? Some?

evil, evil taxes

city just sold off it's hydro to a fucking cable company for $200M

it is to weep

Posted by: jcairo | Jun 17 2008 10:39 utc | 18

It's always interesting when "folklore" and "popular wisdom"
are confirmed by competent technicians. Now more than ever, consumer laments for increasingly higher prices and (relatively) shrinking incomes are so widespread as to be commonplaces. However, the precise measurement of rates of inflation, even their precise definition, is in itself a serious question. Indeed, throughout the industrialized world, entire governmental bureaucracies are dedicated to that hum-drum calculation. Since the question, though exquisitely economic in content, is fraught with political sequela it comes as no surprise that the
econometric elves tasked with collecting and elaborating the relevant data, and grinding out the fateful estimates have frequently received various forms of "friendly persuasion". In an ideal world, those elves would live a cloistered existence dedicated to the precise calculation of their estimates on the basis of clear scientific criteria while using only the best available data. But, of course, the elves' masters seek results that maximize a perceived political advantage or minimize adverse electoral shifts. Such manipulation of the econometric methodology is usually too recondite or too well hidden to receive much public attention, but the long term effects can be deleterious.


Recently two respected figures have raised precisely this point.
In his June market commentary letter Bill Gross of Pimco offers the following
observations:

It’s Sunday afternoon at the Coliseum folks, and all good fun, but
the hordes are crossing the Alps and headed for modern day Rome better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical
scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up physically, intellectually, and institutionally and begin to make
some informed choices about our future. ...

I'll tell you another area where we've been foolin’ ourselves and that’s the belief that inflation is under control. ... I joined others in arguing that our CPI numbers were not reflecting reality at the
checkout counter.

The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments,
2) calculations of housing costs via owners’ equivalent
rent, and
3) geometric weighting/product substitution.
The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world, a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have
raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting
both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late
1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of
calculation. The results are not pretty, but are undisclosed here because I cannot verify them.
...

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now ...
the divergence is beginning to raise questions as to
whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor ... suggest otherwise


The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors
government and corporations as opposed to ordinary citizens.
But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were
really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low
CPI in the calculation of nominal bond yields in effect means that real yields ... are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories bonds, stocks, and real estate would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism
beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are
refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is
closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right.

But Paul Craig Roberts also has something to say on the same question, while discussing contributing factors to the recent upward surge in oil prices:


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

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

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

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

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

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


I have added emphasis and slightly edited the original statements, and apologize for the lengthy, but I think,
useful, quotes. The common message of these two analyses
is that the statistics used as a base for "rational policy decisions" are unreliable and politically tainted. A small step in the right direction would be to allow the elves to
work undisturbed in their econometric cloisters.

Posted by: Hannah K. O'Luthon | Jun 17 2008 11:22 utc | 19

well, the Venezuelans have been providing oil free or at considerable discounts to less fortunate communities internationally. And other oil-rich countries including Angola, Russia, Nigeria, Libya ... will inevitably begin to provide oil & gas to their poorer neighbors at substantial/massive discounts to help ease the pain. And they will do so in the name of unconditional responsibility rather than sympathy-driven Western-style charitable aid. The main obstacles today is technology ref. pipelines, refineries & electrical grids. But these will be overcome.

and to the extent that these countries engage & deploy the relevant technological know-how and intellectual properties, it will be shared & propagated to their poorer neighbors at minimal cost and with minimal strings attached.

in contrast to the West's immoral willingness to extract debt-payments from unbelievably impoverished countries until China began to offer to pick up the tab.

not that Westerners as individuals are less caring or less moral than others. The poor & lesser privileged around the world only get to see the face of Western inspired globalization, incredibly biased market models and the institutional choice to hoard technology & intellectual property.

Posted by: jony_b_cool | Jun 17 2008 12:04 utc | 20

The problem here in the US is not a shortage of crude but a shortage of refineries. The Saudis could pump twice as much oil and it wouldn't make an iota of difference. US refineries have been at capacity for a couple decades already and no new refineries are being built. So gasoline, diesel and other hydrocarbon products are going to continue to climb in price unless demand slows for the end products.

This has been a serious problem for a very long time already and it's why, when the hurricanes start coming into the Gulf of Mexico, fuel prices skyrocket. It's not because of the shutting down of the offshore oil pumping platforms but rather the shutting down and potential damage to the oil refineries along the coastal areas. Part of the reason new refineries are not being built is because the oil industry doesn't want to spend the money, and the other part is because environmentalists don't want them either. So refining has stagnated while demand has increased.

Posted by: Ensley | Jun 17 2008 12:36 utc | 21

@Bulia Base when did amerika ratify Kyoto? No I didn't think so.

Posted by: Debs is dead | Jun 17 2008 12:39 utc | 22

"In an ideal world, those elves would live a cloistered existence dedicated to the precise calculation of their estimates on the basis of clear scientific criteria while using only the best available data. But, of course, the elves' masters seek results that maximize a perceived political advantage or minimize adverse electoral shifts."

This is called "confirmation bias"

Or, in other words, selecting your own "favourite interpretation of what is really happening"

It is exactly what Colon Powell was doing in front of the UN with that laughable photo of any building with a coupla trucks beside it

What, a million dead and counting?

Or the two Maori women, the 22 year old killed and the 14 year old in ICU, at the hands of their own family attempting to drive out demons with water. The girls violent struggles were not to save their lives from a clumsy waterboarding.

No, of course it was the demons resisting the holy cleansing water...

Makes me wanna run out and get acupuncture

I've mentioned "the Secret" before.

About 10 minutes in, there's a kindly looking white haired ol' bloke - I'm pretty sure he has a PhD in something - who says as a way of explaining the veracity of their claims, "Do you know how electricity works? I don't, it just does."

Sign me up. Click.

All the same "thinking"

Posted by: jcairo | Jun 17 2008 15:54 utc | 23

its kind of interesting that the USA govt has created an entire command (AFRICOM) complete with battle-ships and aircraft-carriers to go after militants (in canoes with outboard motors) in the Niger Delta whose occasional attacks on pipelines are jumped on by the market as an excuse to jack up prices.

but not a peep on what to do about practices by market-traders & refiners who collectively have a far greater impact on prices than the angry guys in the canoe.

Posted by: jony_b_cool | Jun 17 2008 17:22 utc | 24

Meanwhile, a meta-narrative...

Faustian Economics: Hell hath no limits (Wendell Berry)

Excerpts Harpers.org May '08

FAUSTIAN ECONOMICS
Hell hath no limits

by Wendell Berry

The general reaction to the apparent end of the era of cheap fossil fuel, as to other readily foreseeable curtailments, has been to delay any sort of reckoning. The strategies of delay, so far, have been a sort of willed oblivion, or visions of large profits to the manufacturers of such :"biofuels" as ethanol from corn or switchgrass, or the familiar unscientific faith that "science will find an answer." The dominant response, in short, is a dogged belief that what we call the American Way of Life will prove somehow indestructible. We will keep on consuming, spending, wasting, and driving, as before, at any cost to anything and everybody but ourselves.

This belief was always indefensible -- the real names of global warming are Waste and Greed --- and by now it is manifestly foolish. But foolishness on this scale looks disturbingly like a sort of national insanity. We seem to have come to a collective delusion of grandeur, insisting that all of us are "free" to be as conspicuously greedy and wasteful as the most corrupt of kings and queens. (Perhaps by devoting more and more of our already abused cropland to fuel production we will at last cure ourselves of obesity and become fashionably skeletal, hungry , but -- thank God! -- still driving.)

The problem with us is not only prodigal extravagance but also an assumed limitlessness. We have obscured the issue by refusing to see that limitlessness is a godly trait. We have insistently, and with relief, defined ourselves a animals or as " higher animals." but to define ourselves as animals, given our specifically human powers and desires, is to define ourselves a limitless animals -- which of course is a contradiction in terms. Any definition is a limit, which is why the God of Exodus refuses to define Himself : "I am that I am."


Posted by: Uncle $cam | Jun 17 2008 18:31 utc | 25

antonia juhasz has a commentary up today @ foreign policy in focus on africom. nothing new for MoA patrons, but good to see the issue continuing to gain ground

AFRI(OIL)COM
We need to kick the habit and just say no, beginning with AFRICOM

Posted by: b real | Jun 17 2008 18:47 utc | 26

b, now that there is a break in the match(s), would you care to comment on this story?

They say that a billion barrels of oil are being played in the futures market and already two years ago when oil was $70 a barrel, $25 of it was due to speculation.

Posted by: dan of steele | Jun 17 2008 19:35 utc | 27

Reliance (world's largest refinery, India) earns more compared with overseas rivals by processing cheaper, heavier crude with high-sulfur content
As a result, they're going to take down 10% of the Saudi fuel supply.

US refiners simply pocketed our Clinton/Bush low-sulfur distillate tax incentives to reconfigure US refineries to process heavy, sour crude.
US Congress should be run out of town on a rail, tarred and feathered.
BigOil owes US, bigtime! Where is our Class-Action Tort!?!

Posted by: Cher Nobyl | Jun 17 2008 19:36 utc | 28

@25 - bingo

It irks to hear otherwise seemingly intelligent talking monkeys say that "science will find an answer".

as if it is as infallible as His Noodlyness.

Ramen

Posted by: jcairo | Jun 17 2008 19:58 utc | 29

The comments to this entry are closed.