“Climate Change” Driving Policy Now

According to the satellite builder, the dominant elements of the political and media culture are “completely in the tank” when it comes to believing in the dangers of “climate change.”  It’s not as if climate change is demonstrably true, he pointed out.  There are valid scientific data from both sides of the climate change issue, and many valid data points in between.  But according to the aerospace executive – some of whose satellites were built to track climate change — “For at least ten years, if you have not been promoting the dangers of climate change then you have not been receiving government grants.  So the research community is following the money.”

Thus the research literature is coming out strongly in favor of “doing something” about climate change.  And policy-makers are using this research literature to justify doing what they’ve wanted all along, which is change the world as we know it.  As a class, the activists want to change the world into something else.

“Pathological Hatred” of Carbon-Based Fuels

According to the steel executive, the climate change issue has spurred what amounts to “a pathological hatred” of carbon-based energy systems.  “It doesn’t have to make practical sense,” says this source.  “It doesn’t even have to work with economics.  It just has to support a policy to utterly transform the nation’s energy system.  The people making policy now have a crusader’s mentality.  ‘The past is trash,’ is how many of the new policy makers view our world.  So the new policy makers want to promote radical change in energy policy.  They’re going to jam it down the throat of the economy.”

According to the steel executive, the steel industry expects to see inflation-adjusted, baseline energy prices triple or quadruple within ten years.  “Whether the government taxes carbon-based energy at the source, or whether they pass ‘cap-and-trade’ legislation, it’s going to cost us.  So we’ll pay.  Of course, we’ll pass along the new costs to the steel buyers.  If demand goes down, we’ll close facilities.  Then the TV cameras will show up at the plant gates to watch us shut the doors and click the padlocks.  And we’ll get called bad names by the people who never much liked us in the first place.”

Can the Economy Support What the Government Wants to Do?

The former Treasury official added that a new “policy paradigm” has yet to form in Washington DC.  “It’s like during the Cold War, there was a bi-partisan consensus to confront and contain the Soviet Union.  It was expensive, but we agreed to do it.  We made the national sacrifice.  Well, that foreign policy consensus ended when the Berlin Wall fell and the USSR came down.”  The groupthink in the early 1990s was that another kind of broad consensus had to take the place of the confrontation with the Soviets.  And by its very nature, that consensus was fragile.

“Let me back up,” said the former Treasury official. “Confronting the Soviet Union gave the U.S. an excuse to continue with Franklin Roosevelt’s Depression Era, New Deal, big government for 45 years after World War II.  But after the USSR fell?  Why did we still need big government?  To run a modern welfare state?  That was the justification.  Remember the talk about that ‘Peace Dividend?’  People were drooling over the idea of cutting the military budget and paying for more and better social welfare through more big government.”

“So what happened?” asked the Treasury guy.  “Some people thought they were going to run a big government welfare state using modern monetary theory.  They convinced themselves that we could do that.  They didn’t understand the long term problem.”

What was the long-term problem?  “The welfare state was never going to last.  Especially because the nation collectively wanted it to support a rank, consumerist culture that could not earn its keep within the world economy.  We imported, imported, imported.  And we paid for it with cheap dollars.  After the U.S. left the gold standard in 1971, the fundamentals of the American productive economy could never support what the nation was trying to do.  We’ll look back eventually and realize it was delusional policy-making.  All we did was run down the economy for a couple of generations.  It finally collapsed in 2008.”

Whatever “post-USSR consensus” existed in the U.S. in the 1990s shattered during the 2000s.  “People went nuts because of the Bush Administration,” said the Treasury official.  “The white-bread explanation – call it ‘Decline and Fall for Dummies’ — was that it was all about the evil George Bush and his wars in Afghanistan and Iraq.  Well, Bush and the wars were visible, so that’s what people blamed.  The real problem for the U.S. was that the whole foundation for post-war American society, economy and governance was caving in under our feet.  The timbers were rotten.”

The Barn Burned Down – Did Anyone Notice?

According to the Treasury man, the U.S. economy is now confronted by “block obsolescence” of many of the economic and political assumptions with which we’ve lived for decades, since World War II.  “Chrysler isn’t the only big institution that’s bankrupt.  We ought to burn down a few universities, while we’re at it,” he added.

And he noted that Republicans and Democrats both fed at the trough while the going was good.  “But while the politicians had their heads buried in the trough for all those years,” he said, “they didn’t notice that the barn was burning down around them.”

The Treasury-man continued:  “Look at the destruction of former industrial titans like General Motors (NYSE:GM), and with GM the annihilation of much of the rest of the automobile industry.  Who’s going to invent whatever will take its place?  We used to say that 40% of the U.S. economy was based on the auto industry, directly or indirectly.  Are we ever going to see 40% of the U.S. economy based on putting solar panels on roofs, or tuning the gearboxes of windmills?”

“Free-Traded” to the Poorhouse – We’re at the Edge of the End

The former Treasury official looked at the ongoing economic crash.  He placed it within the context of the long-term decline in U.S. manufacturing.  “As a society,” he said, “we’ve made a lot of very bad choices of both moral philosophy and economic policy.  Those bad choices have brought us to the edge of the end.  We’ve spent, borrowed and ‘free-traded’ ourselves to the poorhouse.  Now the Chinese own us.”

Helping Embryonic Industry – Creating a Success Story

The venture capitalist chimed in with some thoughts.  “If the feds are going to spend billions on stimulus, then they ought to direct some of that money to help fund promising research.  How about some money to pay for every fossil-fuel power plant in the country to siphon off some of its CO2?  Then run the CO2 through a facility to grow algae to make biofuels.”

“We’d be killing about four birds with one stone,” explained the venture capitalist.  “We’d be taking down CO2 emissions.  Not much, maybe, but some.  We’d be helping an embryonic industry that can be competitive in coming years.  Heck, turning algae into fuel is easy.  The basic part is just high school chemistry.  So we’d be creating a new supply source for the liquid fuels industry.  And we’d be able to point to at least one success story where people can agree that we all did something right.”

Then the venture capitalist added that one of his startups is “working on coal-eating bugs.”  He explained that “There’s a lot of coal buried so deep, or under other conditions that we can’t mine it.  That coal will never get out.  So why not put bugs down in the deep seams, and let them eat the coal?  Then we can harvest the gases that come out the back end of the bugs, and use that as feedstock for other things.”

“Well, What Do YOU Think?”

At one point, one of the lunch participants turned to the silent person at the table, who was busy taking it all in and making a few discrete notes.  Then came the dreaded question, “Well Byron, what do YOU think?”

I focused my comments on geothermal development.  I pointed out that for all the anti-carbon sentiment out there, the most under-appreciated, “clean and green” energy source is geothermal.  There appears to be strong support for geothermal development via tax incentives and other, policy-based standards.  Combine this with the growing social focus on clean, renewable energy sources.

Right now, 24 states have renewable portfolio standards (RPS) for electricity production.  And Congress is leaning towards setting a national standard of 20% to 25% RPS power production by 2025.  We’re at the point where a utility like California’s Pacific Gas and Electric is so desperate for “clean” energy that they’re contracting with a privately-owned company to build a satellite to harvest solar energy from space, and “beam” it back to earth.

The companies that are out there now are in relatively advanced stages of developments.  The big problem is that the follow-on pipeline is almost empty.  The problem has been lack of access to capital for the past year or so.  In other words, lack of capital is the strongest headwind to progress.  If the funding delays can break down, then we’ll see decreased complexity for funding, and project schedules moving ahead.

That’s all for now.  Thanks for reading…

Byron King

Source: The Direction of Energy Policy

The assumption up until now was something about the reassuring value of continuity — if we could just prop up an ailing set of banks for a little while, the US public could resume a revolving credit way-of-life within an economy dedicated to building more suburban houses and selling all the needed accessories from supersized “family” cars to cappuccino machines. This would keep everyone employed at the jobs they were qualified for — finish carpenters, realtors, pool installers, mortgage brokers, advertising account executives, Williams-Sonoma product demonstrators, showroom sales agents, doctors of liposuction, and so on.

This was a dumb strategy for such a supposedly bright group of people surrounding Mr. Obama. That old economy was dead on arrival January 20th. Even the kindest physicians don’t put corpses on life support. This particular corpse has been placed in the world’s cushiest intensive care unit, with transfusions running about a trillion dollars a month — not to mention hefty bonuses for the attending nurses. Instead, a fast and furious wake might have been held, with the corpse of the old economy laid out on a granite countertop for all to toast and bid farewell. President Obama might have led this exercise with some aplomb — even while directing his new justice department warriors to round up a host of suspects in the old economy’s suspicious death.

What it comes down to, apparently, is a leadership elite across all sectors — politics, business, academia, media — that is incapable of processing the truth, and then conveying it to the broad American public. Alas, this also appears to be a common theme in history, with a commonly tragic outcome, which is that elites get ruthlessly dumped and replaced by new elites, often composed of zealots, maniacs, nincompoops, and others generally ill-disposed to the able management of complex affairs. It’s called the “circulation of elites,” and in times of crisis it tends to take on a kind of downward spiraling flavor, with each gang of discredited leaders tossed out for a progressively worse one until a kind of exhaustion is reached — whereupon the archetypal man-on-a-white-horse arrives on the scene.

Mr. Obama looked to be the man-on-a-white-horse — on the exhaustion of Reagan-Bush Jesus-Republicanism — but he’s coming off more like Philippe Égalité (Louis Philippe Joseph d’Orléans, duc d’Orléans) in 1793, with perhaps Newt Gingrich waiting offstage to become Robespierre in 2012 — and some obscure US Army captain now toiling in Kirkuk slated to become the American Napoleon of 2015. As you’ve surely heard a thousand times now, history doesn’t repeat itself but it rhymes. The enormities of Wall Street today are a little like those of the French Ancien Régime at Versailles. If America encounters the sort of disruptions of food and energy supplies that are brewing on the horizon, and unemployment keeps arcing up its current trajectory, civil uproars could easily follow. Readers think I joke about the Hamptons going up in flames. But the antics of the bankers, hedge funders, the CEOs, the Madoffs, and even the P. Diddy’s of our time, are liable to attract murderous attention as the public mood moves from sour to wrathful.

So, what people of good intention and progressive predilection want to know is how come Mr. Obama doesn’t just lay out the truth, undertake the hard job of cutting the nation’s losses, and get on with setting this society on a new course. The truth is that we’re comprehensively bankrupt, and no amount of shuffling certificates around will avail to alter that. The bad debt has to be “worked out” — i.e. written off, subjected to liquidation of remaining assets and collateral, reorganized under the bankruptcy statutes, and put behind us. We have to work very hard to reconfigure the physical arrangement of life in the USA, moving away from the losses of our suburbs, reactivating our towns, downscaling our biggest cities, re-scaling our farms and food production, switching out our Happy Motoring system for public transit and walkable neighborhoods, rebuilding local networks of commerce, and figuring out a way to make a few things of value again.

What’s happened instead is what I most feared: that our politicians would mount a massive campaign to sustain the unsustainable. That’s what all the TARP and TARF and PPIT and bailouts are about. It will all amount to an exercise in futility and could easily end up wrecking the USA in every sense of the term. If Mr. Obama doesn’t get with a better program, then we are going to face a Long Emergency as grueling as the French Revolution. One very plain and straightforward example at hand is the announcement last week of a plan to build a high-speed rail network. To be blunt about it, this is perfectly ******* stupid. It will require a whole new track network, because high speed trains can’t run on the old rights of way with their less forgiving curve ratios and grades. We would be so much better off simply fixing up and reactivating the normal-speed track system that is sitting out there rusting in the rain — and save our more grandiose visions for a later time.

I don’t like to be misunderstood. With the airlines in a business death spiral, and mass motoring doomed, we need a national passenger rail system desperately. But we already have one that used to be the envy of the world before we abandoned it. And we don’t have either the time or the resources to build a new parallel network.

But grandiosity is just another way that we lie to ourselves about where we’re at and what is really possible. Surely Mr. Obama knows that hope fades where the light of truth doesn’t shine. He is a charming fellow. I don’t especially want to see Newt Gingrich chop his head off.

The Joker in the Deck

Things come out of the woodwork. All of a sudden it’s a mutant H1N1 swine flu, with bird and human DNA accessories. We don’t know where this is taking us. It could be a media blowover, like SARS, or it could be a big deal, shutting down travel and assemblies of humans. It would be a very big deal if it killed, proportionately, as much of the population as the 1918 flu event — the worldwide toll then was roughly 30 -100-million out of a global population around 1.7 billion. Now the world population is over 6.5 billion. The only thing anyone can predict at the moment is that there will be a lot of very worried health officials and politicians out there in the days ahead.

This flu epidemic comes just as global economy itself lies comatose in the economic intensive care unit, with IV lines of dollars, euros, yen, and renminbis transfusing its hollowed-out carcass. It’s an odd time for attention to be diverted from that awful spectacle. The cash transfusions have sent the Cable TV gang into raptures of “optimism” — meaning they expect debt securitization to resume as before, along with Yuletide-level credit card shopping sprees in the malls, a mass splurging on new cars, and a renewed frenzy of house-building in the Florida buzzard flats. Those “green shoots” and sprouting “mustard seeds” they report seeing may themselves be a flu-like symptom. I don’t know what the so-called Mexican swine flu will lead to, but the global economy as we’ve known it is a goner.

Even if the Mexican swine flu turns out to be something of a false alarm, it will require billions of dollars in unexpected new outlays for prevention operations here in the USA — reinforcing the false idea that the nation has bottomless resources (the same idea that has been driving the bail-out fiesta). My guess is that the fear emanating from the story will be a potent generator of paranoia in the meantime, leading to widespread closures of things, canceling of events, restrictions on travel (official or otherwise), and a sell off in the financial markets. And that’s if the flu turns out not to amount to anything.

If the flu is the real deal, it will surely drive a stake through the faintly-beating heart of that invalid global economy, and possibly even continental-scaled economies like the US, the Euro-zone, and China — any place where things and people have to move long distances to keep life going. The US, obviously, suffers in this instance from its proximity to Mexico, and the fact that so much of our food comes from places that employ casual Mexican labor. A serious flu outbreak would be a short path to food shortages in the US, with our three-day supermarket inventories and just-in-time shipping methods. It would not be such a bad idea now to lay in supplies of beans, brown rice, cooking oil, onions, and toilet paper.

In any case, the banking-and-investments sector has been on autopilot for a few weeks. Lesser banks are crashing around the country (Idaho, Florida, California last week), but the remaining Big Boyz are still lurching through the landscape like so many Frankenbanks, jazzed up on electric surges of digital cash. There are ever more hints of a peasant uprising against the castle of privilege, but no sign just yet of the flaming brands and shaking fists from the village below. This flu thing will put the schnitz on their distempers for a while.

Regards,
James Howard Kunstler

Source: Hope Equals Truth About Our National Bankruptcy

Here he tells us that his recommended stocks have “upward potential” and that “The Eastern European energy crisis is far from over… and I believe we will be served well holding on to these stocks for the long term!”
This from Amberger:

Back in November 2008, I went on record predicting an energy stand-off between Russia and Ukraine that would pitch Europe into a deep freeze. (Here’s what I said.) It came to pass on New Year’s Eve, when Russia shut down gas deliveries to Ukraine.

On the surface, this conflict was about natural gas. Russia, through its capitalist arm Gazprom, wants to become the energy monopoly of the EU. Ukraine is in the way: While George Bush was president, the country sought to join NATO and the EU—breaking for good with Soviet-era Russian hegemony. And while the Nordstrom pipeline beneath the Baltic Sea is still in the planning stages, most of the gas destined for delivery in Europe has to pass through Ukrainian pipelines.

And Ukraine may just refuse to play ball.

Because Russia has shifted into a placeholder war pattern within Ukraine—attempting an escalation of the political war between Western-minded President Viktor Yushchenko and the ambitious pro-Russian populist Prime Minister Yulia Tymoshenko.

One of our recommended stocks, BMB Munai Inc. (AMEX:KAZ) went up over 31% today. Toreador Resources Corporation (NASDAQ:TRGL) was up 24%. And Total (NYSE:TOT), the main long-term beneficiary, ended the day up a respectable 8%.

Of course, timing is everything, and our initial positions had taken a beating in the collapse of energy prices and foreign equity markets.

But today’s moves validate our initial assessment of these stocks upward potential.

Read the full article here: Gas wars re-ignite in Ukraine!

By the end of 2008, $30-$40 trillion had been lost, in stocks, housing and derivatives. Investors breathed a sigh of relief when December 31 finally came. But then came 2009! World markets have fallen 18% so far this year…2009 is on track to lose far more than even 2008, which was the worst year in stock market history.

What has gone wrong?

Today, we’re going to retrace our steps. In order to understand where we’re going, we have to spend a minute remembering where we’ve come from.

First, the biggest bubble in history sprang a major leak in the summer of ’07. Then came the autumn of 2008, and it was losing air from every seam. The biggest bubble in history might be expected to lead to the biggest bust in history. And so it has…

“Let it burn itself out,” was our advice. Instead, the feds sounded the alarm, slid down the pole, and rushed to put the fire out. But the more money and credit they pumped on the flames, the worse the fire seemed to get.

The Federal Reserve, under the leadership of Ben Bernanke, called out all the fire trucks and opened up all the hoses. Rates were cut to zero…and the Fed expanded its balance sheet – increasing the amount of credit available to the banking system – by nearly $1 trillion.

And the Federal government – under the leadership of George W. Bush – rushed out a tax rebate…and then a rescue bill. Together, they cost a bit more than $1 trillion.

None of this rescuing has done any good. Every bank and business that has gotten help has deteriorated, as near as we can tell. The feds let Lehman go bust and we were done with it. But they saved insurance giant, AIG. Now, AIG is in trouble again. And today’s paper tells us that the feds have stepped in…this time to put in a further $30 billion and “take a controlling stake in two of the stricken insurer’s largest divisions.”

Hey…so now the feds are in the insurance business too.

And here comes the new administration with another $825 billion bailout and the kind of budget that takes our breath away.

If Mr. Obama gets his way, he will soak the rich and squeeze the military; everyone else will be showered with benefits. There’s a health care initiative, for example, that will cost more than $600 billion. And there’s even a plan to provide higher education for everyone.

Republicans are gearing up for a fight. They owe many of their careers to military contractors and are looking forward to cushy jobs with defense businesses should the voters ever catch on and boot them out of office. They’ll fight to keep the U.S. spending money as if we were at war. The Republicans don’t appreciate it much either when people on their high-dollar-donor lists are hit with higher taxes.

Democrats are readying for a dust-up too. They’ve dreamed of moments like this – it is as if the police and the alarm companies had all gone on strike at the same time. They’re planning to rob every bank in town – and expect to get thanked for it. It is not often that they can divvy up trillions in boondoggles…and pretend it is in the national interest.

With this worldwide financial meltdown you can get away with anything. People have come to believe things so absurd you’d think even a Democrat would laugh at them. Most think you can give money to failing companies…and somehow they’ll be healthy businesses again. Some believe that you can print up paper money – and that it will be as good as the real thing. Almost all of them think spending money on anything, no matter how stupid, actually helps the economy. If it were only that easy!

Obama says he’s preparing for a fight too. Which is fine with us; we like a good fight. Even one that is rigged. And this one surely is. Just look a chart of government spending over the last 30 years. What you see is that there is nothing extraordinary about what Obama is doing. Every year, through Republican and Democratic administrations…from Ronald Reagan to Barack Obama…the Republicans and Democrats pretended to fight about how much money the government spent. And every year the trend continued: higher spending, higher deficits. It didn’t seem to matter who was president, or what was going on. Each year, spending rose…and so did the real deficits. That too is a feature of the post-war consumer economy. And that, too, is probably coming to an end.

*** After all this fire fighting…you might think that the blaze would be under control by now. Not at all.

On Friday, the Dow lost a further 119 points. It’s clearly ready for a rally…but there is none in sight – yet.

Oil is at $44. Gold lost ground too…it’s down to $942.

We recall that last December, as stock prices were collapsing, Warren Buffett stepped up and put his money and his mouth in the same place. He was buying stocks, he said.

But buying stocks proved a bad place for both his money and his mouth. Stocks continued falling. And so did the economy that is supposed to support them. Economic output in the United States is falling at a 6.5% rate – the fastest drop in 26 years. And now Buffett says the economy will be a “shambles” this year. His own company, Berkshire Hathaway (BRK.A / BRK.B), reported profits down 96% from the year before…and is trading at only about half its peak. In other words, Berkshire shareholders have lost half their money.

And here’s a good question for you, dear reader: If the smartest investor in the world can’t make money in this market, how do you expect to?

If we were you, we wouldn’t even try. You see, this is not a recession…and it’s not a buying opportunity. It’s a depression. And at this stage in a depression, the best thing to do is to sell stocks, not buy them. Because they have further to fall…and because they could take a long, long time to recover.

We’ve explained the difference between a recession and a depression before. But we’ll do it again. A recession is a pause in an otherwise healthy, growing economy. A depression is when the economy drops dead. And when it drops dead, the assets that people owned – stocks, bonds, houses, derivatives, debt – are called into question. What are they worth, now that the economy that created them no longer exists? That’s the big question. The U.S. economy has been expanding for the last 60 years – largely by increasing consumer spending and debt. Now, neither consumer spending nor debt is increasing. In the last 6 months, consumers have suddenly reversed their free-spending ways. Borrowers and lenders have repented too. But if it is no longer an economy that grows by increasing consumption and debt…how does it grow at all? And what about all those businesses that are set up to provide products and services to the consumer economy? And what about all the debts and obligations that the consumer economy produced; what are they worth?

That’s what everyone wants to know. So the markets have entered into a period of vigorous price discovery. Some things are still valuable, of course. A house, for example. But many things aren’t as valuable as they used to be. The house won’t be worth as much if people can’t borrow to buy it…or if potential buyers can’t get a job. And the mortgage debt that the house carried…which was recycled into a leveraged debt instrument…is bound to be worth a lot less than people once thought.

But it takes time to sort out the good assets from the bad ones. How much does the business owe? To whom? Who owes it money? Will the debtor be able to pay? And what about those strange piece of paper – CDOs, MBOs, SIVs – in the company vault? What are they worth?

For a while, people are so afraid of making the wrong move that markets freeze up. No one wants to lend when he doesn’t know if he’s going to get his money back. That’s called a ‘credit crunch.’ And no one wants to buy when he has no idea what things are worth. That’s when markets go “no bid.”

But eventually – unless the feds stop the process – things sort themselves out. Businesses go broke. Homeowners are defenestrated. Automobiles go back to the dealers’ lots. Prices sink to a level where people are able to buy. And the whole process starts over again.

This can take a long, long time…especially when government is trying to stop it.

*** “We must kill zombie banks or face a lost American decade,” says James Baker, U.S. Treasury Secretary under Ronald Reagan and U.S. Secretary of State under George Bush I. Japan is still trying to adjust to the realities of its post-bubble world…after the initial crash 19 years ago. It propped up banks instead of fixing them, he says. The banks were kept alive…but not performing their function. Result: a lost decade. Maybe two.

In the United States, in the ’30s, on the other hand, the zombie banks were allowed to die. More than 1,000 banks were buried. Still, the economy didn’t really recover until after WWII – some 2 decades after the crash of ’29.

Maybe killing the zombie banks isn’t enough. Zombie companies must be allowed to fail, too. And zombie homeowners. And all the zombie investments made in the preceding bubble years.

Of course, that is what is needed. A period of creative destruction. But in this period of discovery, we don’t know who’s a zombie and who’s not. Not yet. It will take time to find out. A new economic model must take shape. Then, the markets must tell us what things are still valuable…and what they are worth.

An example: a mall. Shopping malls were designed for an economy in which consumption increased at a more-or-less predictable rate. As consumption increased, mall owners could project how much retail space they could let out…and what yield it would produce. Based on those figures, banks could lend against the value of the mall…and investors could put their money to work building new malls.

But that economy is missing and presumed dead. Consumption is no longer increasing, it’s declining. And the biggest consuming group – the baby boomers – seem to be changing their habits forever. From here on out, they are likely to be saving money for their retirements…not spending.

What is that mall worth now? What do the projections show? The commercial property loans used to build the mall were based on projections made years ago; what are those loans worth now?

We’re all waiting to find out. A new economy needs to arise, step over the corpse of the dead one, and get moving. What kind of economy? We don’t know… When will it happen? We don’t know that either. What companies will prosper…which ones will fail?

We wish we could tell you.

In the meantime, all we have is guesses… Stay tuned for more…tomorrow.

Regards,

Bill Bonner

Source: Federal Firefighters to the Rescue!

First, has anyone else noticed that the two places the president has visited to pimp the stimulus are poster children not only for economic hardship, but for malinvestment?

Today the president visits Lee County, Florida — home to a stunning overbuild of single-family homes.  Southwest Florida might well be the epicenter of this bubble, and Lee County might have it worst in that region.  Lee County was where people built and bought when they couldn’t afford to build or buy in Collier County next door.  Can’t afford Naples?  There’s always Fort Myers.  Easy financing available.

The unspoken assumption behind the president’s visit — and much of the thinking of his advisers — is that a “floor” must be put under housing prices.  That is, the only way to make the “American dream” accessible to more people is with cheaper credit.  Perish the thought that cheaper housing would be the better route, that supply and demand should be allowed to do their thing and home prices should fall back to a level of three or four times annual income.  Can’t have that.  People might actually pay off their mortgages instead of rolling over the debt.

Yesterday the president visited Elkhart, Indiana , a place I know a little about; it was one of my stops along the way during my previous career.  The main industry is the manufacture of recreational vehicles.

Ponder the bonus irony; not only does the president want his “stimulus” to spur more people to buy recreational vehicles (presumably with cheaper credit, just like houses), he wants to bolster an industry that’s the epitome of the gas-guzzling culture he criticized during the campaign.  But contradictions matter little to panicked politicians in the midst of a bursting bubble.

The other question I have this morning is about “Son of TARP,” which Treasury Secretary Tim Geithner unveils today:  Does Congress have any say-so about this monstrosity?  Or did the original bailout bill hand so much authority to Treasury that Geithner has a free hand to do whatever he wants?

It’s really breathtaking to read establishment media coverage of this; there’s almost no mention of the role of the legislative branch.  It’s as if this whole bankster bailout is strictly within the purview of the executive branch and that’s the proper and normal order of things.

A clue to the answer lies in a Financial Times analysis that says, referring to the president’s news conference last night, “Politics forbade Mr Obama from disclosing when, or whether, he will return to Congress to ask for many hundreds of billions more in financial bail-out funds – as he will almost certainly be compelled to do in the very near future.”

The same story also puts a price tag on what Geithner will announce today: $350 billion. That indicates whatever he’ll announce pertains only to how the second half of the original TARP money will be spent.  But that flies in the face of the Wall Street Journal, which says, “The expanded effort could see as much as $2 trillion in financing flowing through the system, according to Congressional officials briefed Monday night.”

So I guess Geithner’s announcement will be two-pronged; first, how to spend the other $350 billion of the original TARP, and second, to lay out the broad outlines of TARP II, price tag TBA, pending Congressional approval.  Or something like that.  Should I really have to read multiple sources to get a handle on something that basic?

I also see in the FT article confirmation of what I said on Friday, that Geithner has one shot at this:  “[Obama] hinted that he understood precisely what everyone in Washington is thinking – that if the financial bailout fails this time round, then his presidency could turn into a sinking ship soon after its launch. ‘Let’s get this right,’ Mr Obama said. ‘Let’s create a template in which we’re restoring market confidence.’

That Obama and Geithner risk being seen as a Keystone Kops continuation of George Bush and Hank Paulson is merely implied.

Update: It’s now nearly noon EST.  The Dow has dropped 200 points since Geithner’s mug appeared on TV at 11.  It’s like Paulson all over again, but worse — because Geithner hasn’t even started revising his own plan.

Source: Impertinent Questions

Stocks are up 20% from their November lows. And they could go much higher. But don’t be fooled by this “sucker’s rally”. The Dow is on its way to 5,000. The Fed is trying to stop it. But remember, the Fed caused this crash. And it was government ‘rescues’ that made the 1930s Depression so Great…

Here is another excerpt from Bill Bonner and James Davidson’s crisis report, How to Survive and Prosper in the Coming Global Depression.

To read the full report, simply enter your e-mail address below. You’ll also begin receiving critical updates to the report via e-mail.

One of the most important things to grasp right now is that this is no ordinary market correction.

The problem is much deeper and more complex than that…and probably not even one investor in one thousand truly understands it.

You see, what’s actually happening is the bear market that began in January 2000 is finally getting down to work.

Stocks have been going down. And they will probably keep going down until they finally hit rock bottom — probably at about 5,000 points on the Dow.

Maybe we’ll even see a correction to the entire bull market run that began in 1982. If so, you can expect the Dow to sink down to about 3,000 (adjusting the 1982 level to inflation).

Of course, we are likely in for a big “sucker’s rally” first — just like the one that lured in doomed investors back in 1929.

From September 1929 through November 1929, the Dow plunged 47 percent from its high of 381. It then started its famous sucker’s rally of the spring of 1930, before plunging to 41 in July 1932.

Japan also had plenty of sucker’s rallies during the country’s economic slump in the 1990s.

In fact, stocks there rallied at least 30 percent higher five times after 1992. They then found new lows again…and again…and again.

Why do we believe the Dow will drop to 5,000 points?

We don’t have any inside information, nor do we have a crystal ball. But if you study a long-term chart of the Dow, you will notice something very peculiar. It tends to go way down after it has been way up – in 15- to 20-year waves.

The top of this wave washed over us in January 2000. Since then, the index has been higher…but not when you adjust it for inflation.

It probably would have corrected to the 5,000-point range already. But the feds intervened.

This is critical to understanding the current crisis.

It’s not an insight you’re likely to pick up on CNN. Nor is it something Barack Obama or George Bush or Ben Bernanke wants to admit.

But in trying to head off a bear market back in 2001, the Federal Reserve actually provoked a housing bubble, a financial bubble a commodities bubble and a worldwide credit bubble.

As Bill wrote in his 2006 best-seller, Empire of Debt: The Rise of an Epic Financial Crisis:

What the Greenspan Fed had accomplished was to put off a natural cyclical correction and transmogrify an entire economy into a monstrous economic bubble. A bubble in stock prices may do little real economic damage. Eventually, the bubble pops and the phony money people thought they had disappears like a puff of marijuana smoke. There are winners and losers. But in the end, the economy is about where it began — unharmed and unhelped. The households are still there and still spending money as they did before. Only those who leveraged themselves too highly in the bubble years are in any trouble.

But in Greenspan’s bubble economy, something awful happened. Householders were lured to take out the equity in their homes. They believed that the bubble in real estate prices created wealth that they could spend. Many did not hesitate. Mortgage debt ballooned in the early years of the twenty-first century — from about $6 trillion in 1999 to nearly $9 trillion at the end of 2004 — increasing the average household’s debt by $30,000.

The US economy faced a major recession in 2001 and had a minor one. The newborn slump was strangled in its crib by one of the most central planners who ever lived. Alan Greenspan cut lending rates. George W. Bush boosted spending. The resultant shock of the renewed, ersatz demand not only postponed the recession, it pushed consumers, investors and businesspeople to make even more egregious errors. Investors bought stocks with low earnings yields. Consumers went further into debt. On the other side of the globe, foreign businessman worked overtime to meet the phony demand.

Post-1929 Rescue Didn’t Work Either

Uncle Sam didn’t do much better in ‘fixing’ the Great Depression.

Why?

It’s simple, really: Presidents Hoover and Roosevelt lacked faith in the marketplace.

In this respect, they were no different to President Bush or President-elect Barack Obama.

Just like their 21st century successors, Hoover and Roosevelt acted as though government management of the economy was the only solution the country’s economic problems.

But the real problem was, and still is, government intervention.

Hoover’s introduction of international trade tariffs under the Smoot-Hawley Tariff Act is an obvious example.

Rather than helping protect the wounded US economy, as Hoover had hoped, it cut American imports and exports in half and is widely recognized as a catalyst for the Great Depression.

Roosevelt’s government programs were also to blame for drawing out America’s economic woes.

That’s not to say all were a disaster. Some, like the establishing of the Securities Exchange Commission, had a stabilizing effect at the time.

But as Bloomberg columnist Amity Shlaes points out in her history of the Great Depression, The Forgotten Man, “Other institutions, such as the National Recovery Administration, did damage.”

The NRA … sought to solve the monetary challenge through price setting. NRA rules were so stringent they perversely hurt businesses. They frightened away capital, and they discouraged employers from hiring workers. Another problem was that laws like that which created the NRA — and Roosevelt signed a number of them — were so broad that no one knew how they would be interpreted. The resulting hesitation in itself arrested growth.

Sprawling government programs designed to fix the economy. Laws “so broad that nobody knew how they would be interpreted.”

Ring a bell?

As Roosevelt put it in his second inaugural address, he “sought unimagined power” to turn the economy around.

But Roosevelt wasn’t a patch on Henry “Hank” Paulson Jr…

On October 3, 2008, Public Law 110-343 bestowed upon Paulson perhaps the most incredible powers ever bestowed on one person over the economic and financial life of the nation.

The 451-page law created not only created the $700 billion Troubled Assets Relief Program, it also gave the US Treasury Secretary almost dictatorial powers.

Consider this passage from the first draft of the bill.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Or these two humdingers…

The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this act without regard to any other provision of law regarding public contracts.

Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Roosevelt may have sought “unimagined power,” but he was never brave enough to try to sign such powers into law.

You see, Bush, Paulson, Bernanke and Obama really do believe the best path to calming the current crisis is to throw huge amounts of taxpayers’ money at banks, credit card companies, automakers and anyone else with a lobbyist with deep enough pockets to get his foot in the door of the Treasury Department.

But they’re all missing a fundamental point.

As Shlaes puts it:

The big question about the American depression is not whether Germany and Japan ended it. It is why the Depression lasted until the war. From 1929 to 1940, from Hoover to Roosevelt, government intervention helped to make the Depression Great.

Austrian School economist and father of modern Libertarianism Murray Rothbard reviewed the record of the post-1929 rescue team and came to the following conclusion.

The Hoover and Roosevelt administrations met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously … putting into effect the greatest program of offense and defense against depression ever attempted in America [using] every tool, every device of progressive and enlightened economics, every facet of government planning to combat the depression.

Yet the depression didn’t go away. It intensified. Real wage increases and higher government spending smothered an expected recovery in 1931.

The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy and placed where it properly belongs: at the doors of politicians, bureaucrats and the mass of ‘enlightened’ economists. And in any other depression, past of future, the story will be the same.

A Titanic Rescue

Yet on the announcement of the US government’s $700 billion bailout plan, stock markets all over the world breathed a sigh of relief…albeit brief.

This is not unusual.

As we’ve already pointed out, after the October crash in 1929, stocks rallied until April. Then they started to slide again and did not fully recover until the 1950s – more than 20 years later.

Investors can always find reasons for optimism…when they’re in the mood. After so many years of rising prices, the momentum of a bull market keeps them hoping.

It was as though the passengers on the Titanic had seen in the distance what looked like a flotilla of rescue boats on the horizon.

Hats were tossed in the air. Life preservers were cast off. Investors cried “Hosanna!” and shouted “Yippee!” The band broke off playing Nearer Thy God to Thee and picked up a soaked version of Laissez les Bon Temps Roulez!

A couple of days later, the rescue boats drew closer…and passengers jaws dropped when they realized they were just more icebergs! Stocks sold off again.

At roughly $8 trillion, the credit crisis already clocks in as the most expensive endeavor in American history. It’s more than the country spent fighting Hitler and his allies in World War II.

And banks still aren’t lending!

Washington simply doesn’t get it.

As Rothbard puts it:

The depression is the ‘recovery’ process, and the end to the depression heralds the return to normal and to optimum efficiency.

The depression, then, far from being and evil scourge, is the necessary and beneficial return of the economy to normal after the distortions imposed by the boom. The boom, then, requires a ‘bust.’

But after sinking the Titanic of Wall Street and the dinghies of homeowners by giving away too much easy credit, our modern-day rescuers have come to the scene with life preservers of lead: more easy credit.

About the authors:

Contrarian Profits readers are probably familiar will Bill’s commentary from his Daily Reckoning column. But here is some information about James Davidson:

Davidson is a self-made multi-millionaire, venture capitalist and best-selling author.

His books include Blood in the Streets, Financial Reckoning Day and The Sovereign Individual.

As an author and editor of private financial advisory service Strategic Investment, Davidson has made a number of bull’s-eye crisis predictions.

He is the founder and chairman of the National Tax Payers Union, the largest and oldest grassroots taxpayer organization in US.

His forecasts and his war against taxes and deficits have earned him frequent invitations on programs such as Good Morning America, The Tonight Show and MacNeil-Lehrer.

Once again, sign up below to join the thousands of Contrarian Profits readers that have already read this report. Your free e-mail updates will arrive shortly…

A recent Associated Press-Ipsos poll conducted June 12-16 showed only 29% of the public gave Bush a favorable rating. It’s the least favorable approval rating for a U.S. president since Jimmy Carter’s approval rating dropped to just 22%.

While that lousy view of the job Bush is doing will help set up a more-contentious election in November, here’s a curious fact that investors will find quite rewarding: The key to better stock-market returns isn’t having a president we “love” – it’s having a president that we don’t quite hate.

Let me explain.

According to a study of presidential approval ratings by Ned Davis Research that looks back all the way to the days of President John F. Kennedy, when the president’s approval rating is below 35%, as it is now, the Dow Jones Industrial Average Index loses an average of 5.9% per year. When times are good and presidential approval ratings exceed 65%, the Dow rises at an annualized rate of 2.6%. But when just 50%-65% of the public gives a favorable rating, the markets do a bit better and the Dow rises at a 5.4% annualized clip. [Click here for the full chart on how the Dow has performed during different presidential administrations.]

Now here’s the really interesting part.

When the majority of Americans disapprove of how the president’s doing his job, and the approval rating clocks in between 35%-50%, the Dow posts an average annualized gain of 12.3%. In other words, when less than half the population has a favorable view of a sitting president’s performance, the Dow’s upside potential improves by 127.78%.

Talk about a counter-intuitive result!

For next year, then, it seems that the key isn’t for us to elect a president that everybody likes; instead, the country needs to elect a president that the masses “hate” a bit less than they dislike Bush and who only does his job well enough to garner the support of between 35% and 50% of the population.

Anything worse, and the Dow could fall, which given “The Dubya’s” current lackluster rating, is right on track for how the markets are behaving lately.

And that has us thinking: Who amongst the presidential contenders that are left do we like the least?

Source: Why Poor Presidential Approval Ratings Make for Great Stock Markets

Take Libya, for instance. In 2006, the U.S. State Department removed Libya from its list of “state sponsors of terrorism.” That opened the door to over a hundred million dollars worth of U.S. investment into Libya. However that wave of investment funds now exposes foreign investors to multimillion-dollar terrorism judgments.

Lawyers representing victims of terrorist attacks that Libya allegedly sponsored before 2006 have notified at least a dozen corporations of pending lawsuits. Since Libya was sued prior to 2006 in connection with these attacks, the lawyers believe they can go after companies that invested in Libya after the State Department took Libya off the terrorism list. If a federal court in Washington, D.C. agrees, it will be open season on any of these companies.

The same logic would presumably apply to investments in any other country that’s removed from the blacklist in the future. What that means is the same lawyers who troll the Internet looking for deep pockets could come after anyone with even the most remote connection to a “state sponsor of terrorism.” If you fit the criteria I mentioned yesterday, a plaintiff’s attorney could serve you with a notice of a costly lawsuit – whether you win or lose.

When President Bush campaigned for reelection in 2004, he promised to protect Americans from what he called “the explosion in frivolous lawsuits.” So it’s very ironic that as he leaves office, plaintiff’s attorneys are gearing up for an orgy of such lawsuits.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

Source: Next Time You’re Sued, Be Sure to Thank Mr. Bush

This could make for several rough years for U.S. investments, underscoring yet again the importance of searching out profit plays overseas.

That’s why it’s crucial that we understand just what each candidate is likely to do should he reach office. Interestingly, there are three areas where the two presidential hopefuls seem to be in agreement. Indeed, no matter which candidate reaches the White House, investors can expect there to be:

• An introduction of a “cap-and-trade” carbon-emissions-control system.
• Higher taxes.
• And stepped-up regulation of the U.S. financial-services sector.

Warming Worries Will Spawn Emissions Regs

Of all the anticipated changes, the most widely publicized is the expected introduction of a so-called “cap-and-trade” carbon-emissions-control system. Both Obama and McCain favor such a system and Congress is currently drafting legislation that is not expected to pass this year (while George W. Bush is still president), but to form a template for legislation from a Democrat-controlled Congress to be signed by either Obama or McCain in 2009.

The most economically efficient way to curb carbon emissions is by means of a carbon tax. Such a tax would penalize emissions by polluters at a flat rate per ton, and could be offset by reductions in other taxes – a decrease in the corporate tax rate, for example – thus neutralizing its overall economic effect.

Provided the tax was set at a moderate rate, it would provide incentives to shift from carbon-based fuels to other energy generation systems, while the market itself would determine which carbon uses would be discontinued and which were too expensive to change. It wouldn’t matter too much at what level the tax was initially set, since a moderate error in setting the level would produce only moderately suboptimal polluter behavior, as the incentives produced either a little too much clean-up and consequent economic damage, or not quite enough.

The carbon tax is unpopular with politicians, because of the word “tax.” From bitter experience, they have found that raising taxes leads to unpopularity and, ultimately, to electoral defeat. Even if other taxes are lowered, the squawks of the complaints and protest of the losers are always much louder than the contented purring of the winners. That explains their preference for a “cap-and-trade” emissions policy, under which politicians pretend to give something away, providing licenses to pollute, which can then be traded among users.

The main difference between the cap-and-trade schemes of McCain and Obama is this: McCain would allow the government to give out permits to polluters while Obama would auction off permits.

At first glance, McCain’s approach appears more pro-business, but consider this: If the government gives out the permits, it gets to choose which companies get what permits. That creates a huge new playing field for lobbyists and opens the door to all sorts of new opportunities for corruption, as polluters “compete” to gain the political favor of an emission permit allowance. Already in the draft Congressional legislation provision is being made for favored groups to be given special allowances of emission permits – essentially the same as the government giving them cash, as the permits will have value.

Under Obama’s proposal, however, the government will auction off the permits. That will ensure that their price is set by a market process, and that companies neither gain nor lose by their special access to legislators. It’s a much more honest process, and a much-better representation of the “free market.” And the extra revenue it generates can be returned to the taxpayers via tax reductions in other areas.

Indeed, the only disadvantage of Obama’s proposal compared to a carbon tax is that the government has to determine initially how much carbon should be emitted. That is a very difficult parameter to determine, and an error of 1%-2% in either direction can have a huge effect – as shown by the 2004-07 European Union emission permits, where too many were given out. As a result, the prices in the permit trading market dropped 98% in a couple of weeks, as companies discovered there were ample permits for all. A market with that degree of uncertainty is far more likely to result in corporate-finance game playing than in any serious reduction in emissions.

McCain’s proposal contains a number of additional potentially detrimental features. Under it, reducing emissions in emerging markets can satisfy emissions requirements. But as the European Union has discovered, one spin-off effect has been the creation of a thriving market in Chinese environmental-cleanup scams. Further complicating the scene is the fact that some industries would be partially exempted in order to allow for transitional difficulties – providing another fertile field for government meddling and corruption. Still, even with Obama’s proposal, a “cap-and-trade” system is likely to do significant economic damage, and given the fact that legislation would need to be drafted by Congress, the chance of huge economic distortions must be considerable.

The Taxman’s Bigger Bite

A second area where both candidates essentially agree is that taxes will be higher. McCain obfuscates this, because he needs to preserve his relations with the Republican “base.” But he has made it very clear that fiscal discipline in terms of balancing the U.S. federal budget is his most important economic objective. And he favors further activity in the Middle East, a fact that’s likely to involve an expansion of defense spending. Since, even without a recession, the federal deficit in the years to September 2008 and 2009 will be close to $500 billion, McCain’s balance-budget objectives cannot be achieved without tax increases, both reversal of most of the 2001 and 2003 tax cuts and increases beyond that.

Obama has been more up-front about his desire to reverse the 2001 and 2003 tax cuts, and to impose Social Security contributions on incomes above $200,000. Since he also favored U.S. Rep. Charles B. Rangel’s bill, which increases income taxes on higher incomes, an Obama administration could potentially increase the top marginal rate of income taxes increase from 35% to 52%.

Obama also favors an increase in the capital gains tax rate from its current 15% to at least 20%. On the positive side of the budget, an Obama administration would presumably save money in the Middle East. And his health-care plan, which mandates coverage for children but not for adults, would presumably be somewhat cheaper than Hillary Clinton’s plan.

Nevertheless, tax increases are inevitable no matter who wins in November. And if Obama were to win those new levies might include a supercharged capital-gains tax and even dividend-tax increases – either of which could hammer U.S. stock prices.

Financial Services Scrutiny

A third area of agreement between the candidates is in greater regulation of the financial-services business. From the viewpoint of a retail investor, this may be a good thing: After all, who could object to fewer scams and rip-offs, or-less-egregiously overpaid investment bankers?

Earlier this week, NYMEX crude oil futures, in un-lady like fashion, bolted to an intra-day high of US$127.27. It capped an exuberant dash which saw oil gain over 8% in six trading days, 30% since the beginning of the year, and 100% in the last twelve months. It’s just the sort of thing you’d expect from a ten-year old.

Here is an astonishing fact: on December 10th, 1998 the spot price for a barrel of West Texas Intermediate crude was exactly ten U.S. dollars and ninety eight U.S. cents. Nearly ten years and one thousand and sixty two percent later, it is time to ask some impolite questions about oil.

Impolite questions are not always obvious questions, though. The obvious question is to ask how high oil can go. Arjun Mutri and his team at Goldman Sachs have told us a disruption in supply could send oil to another “super spike” over US$200. Two years ago, the “super spike” was supposed top out at $100. Maybe it will be US$500 two years from now.

It is easy to keep raising the figure, but is probably more useful to ask a different question. The important investment question is not how high oil can go from here. The impolite but important investment question is where future global oil production will come from at all.

The answer, according to a new report from UBS, lies with just eight oil companies, one of which investors can’t even buy. Below, I’ll look at where future production may come from, who stands to profit the most, what investors can do now, and three “Black Swan” possibilities for the oil market that no one has prepared for.

Why Are Oil Prices So High?

An obvious question on the lips of anyone who buys petrol is, “Why are oil prices so high?” Consumers trained in the ways of the free market—and used to cheap clothes and electronics made in China—are right to ask the question.

In a fully-functioning free market, rising demand tends to attract rising supply. The reason?
Profit.

When a market is imbalanced and demand exceeds supply, prices rise. At that point, opportunistic new producers tend to rush in and grab some of the profits by brining on new supply. Prices fall and, for awhile anyway, equilibrium is restored.

That’s how it works in textbooks. That is not how it’s been working in the real world. According to the International Energy Agency, world oil demand has increased in each of the last three years, from 84.9 million barrels per day in 2006, to 86mbbl/day in 2007, to this year’s rate of 87.2mbbl/day. The IEA’s most recent forecast calls for global demand of 87.8mbpd for the rest of this year.

In response to this increase in global demand, OPEC oil production promptly declined by 265kbpd in February (the latest period for which official figures are available) to around 32mpbd. Not exactly helpful. And latest survey from Platts predicts a March decline in production of 347kbpd from the February figure. This brings average OPEC production below 30mbpd for the month.

This past weekend, U.S. President George Bush travelled to the Kingdom of Saudi Arabia, politely requesting the Saudis increase oil production to bring down gas prices in America. The Saudis demurred, and told the President oil production was more than sufficient to meet global demand.

OPEC blames the oil price on the weak U.S. dollar, but admits prices could go higher still. OPEC President Chakib Khelil explained the situation to journalists in late May, saying:

The prices are high due to the fact of the recession in the United States and the economic crisis which has touched several countries, a situation which has an effect on the devaluation of the dollar, and therefore each time the dollar falls one percent, the price of the barrel rises by $4, and of course vice versa.

In other words, OPEC blames the oil price on the sliding U.S. dollar and not inadequate supply. Khelil added that, “If this (the dollar) strengthens by 10 percent, it is probable that (oil) prices will fall by 40 percent.” At today’s prices, that would put a barrel of crude at US$76.

Froth vs. Fundamentals

If you can say with assurance why oil prices are US$127, you are more assured than most. OPEC believes oil strength is really just U.S. dollar weakness. A stronger dollar means lower oil prices, and probably lower commodity prices in general. There are other theories that seek to explain the high oil price, including a “fear premium,” oil as an inflation hedge, and pure speculation by professional traders.

But there are three other possibilities to consider. Exploring them gives us a clue about where oil prices are headed and where future production might come from. These possibilities are:

1. OPEC won’t increase production because it doesn’t want to
2. OPEC can’t increase production
3. Non-OPEC countries cannot increase production enough to bring prices down

It is impossible to answer the first question. Oil producers, from OPEC to large multi-nationals, plan with long time horizons. They view oil markets as cyclical and do not base capital expenditure plans on pie-in-the-sky price forecasts. They are reluctant to recognise and respond to what your editor (among others) believes is a structural revaluation in global energy prices (not a cyclical bubble).

But this institutional skepticism about how long high oil prices can last does not account for the slump in this year’s production. OPEC’s production has fallen this year because of continued disruptions in Nigeria (see table below). Rebels in the Niger River Delta have reminded us all of how vulnerable the global energy system is to systematic sabotage. But excluding Nigeria, the rest of OPEC is running at near capacity.