Americans are responding. The latest numbers show them driving nearly 5% fewer miles this year. And the Arizona Republic opines that the price of gasoline is not likely to fall much further.

OPEC’s revenues add up to more than a $1.1 trillion per year – more than the U.S. government gets in tax receipts. If OPEC were to save its money, in just three years it could buy nearly the entire Dow – taking control of America’s most important industries.

Of course, if the foreigners got together and pooled all those dollars they’ve been collecting over the years they could already buy control of every public company listed on the NYSE.

But don’t worry about it, dear reader; they’re not going to do it. Yesterday, we got word that Russians were getting a foothold in the U.S. steel industry, buying the John Maneely Company, a steel pipe maker in Ohio, for $3.5 billion. Sure, there will be a lot more foreigners picking through the rubble of once-great U.S. manufacturing businesses. With the dollar down…and U.S. wages falling (more below…)…the foreigners are finding that the United States can be a good place to outsource work. But the takeover of key U.S. industries will be piecemeal and disorganized. Besides, the empire is giving way anyway. You can’t run an empire on credit – not for long. And not when you have to borrow from your rivals. A real empire needs to be able to control its money. And a borrower is never in control. As it says in the Bible, he is “slave to the lender.”

Americans forged their chains over the last three decades. Now, the homeowner is slave to the mortgage lender (the typical house is majority owned by the mortgage holder)…the mortgage lender is slave to the Wall Street banks that lent it money…and Wall Street is now slave to the U.S. government. When the big financial institutions need money today – they turn to the feds, not to short-term money markets. Yes, the Fed has become the bank of first, middle and last resort. It advertises to Wall Street: Need cash? Bad credit? No problem!

But where do the feds get any money? The U.S. government now spends about half a trillion more than it takes in. Where does that money come from? From U.S. citizens? Nope, they don’t save a dime. Directly and indirectly, it comes from those nice people who speak Chinese, or Russian, or Arabic – you know, the same people who are jockeying to replace the United States as the world’s leading imperial power.

*** And now, more rambling thoughts…on how the empire ends, how the feds duck the blame, and how wage-earners get whacked…

Today marks the anniversary of the Assumption of the Virgin, so we turn away from sin and wickedness, just for a moment. Elizabeth is always trying to improve us. If she isn’t informing us about medieval church history, she is tugging the family to a concert or staging a dinner party. True, we could use some improvement…there’s room for it. But, often, it’s an uphill battle.

Today, she took the family to mass at the “collegiale” in Le Dorat. And tonight, we are going to a party; we are supposed to wear white in honor of the Virgin. We will come back better for it, we’re sure…

But today, we wear black – in honor of Wall Street. Or maybe we should wear black and blue?

Yes, the financial news should be reported in the crime section of the paper – along with the perps, pimps, and pushy panhandlers. It is all a giant fraud, as near as we can tell. After pumping up a huge credit-bubble over a period of more than 30 years, everyone is hoping the globalized economy gets off with only a slap on the hands…

U.S. homeowners are getting paddled; yesterday’s news brought forth new evidence. The National Association of REALTORS reported a 7.6% drop in house prices nationwide during the second quarter. One third of all sales are now of foreclosed houses – on which the lenders lose money. Repossessions are running three times what they were a year ago, with the largest inventory of unsold houses on record.

Sacramento, California, seems to be the epicenter of the housing quake. Places there are down 36%, according to the NAR. On the other side of the country, the housing-price tornadoes touched down in Cape Coral and Ft. Myers, both in Florida, where prices are down 33%.

House sales are at a 10-year low. And houses take three times as long to sell as they did two years ago. While they are waiting to sell their houses, people default on their mortgage payments. Default notices are running 53% ahead of a year ago. And analysts from Credit Suisse estimate that 8.4% of ALL homeowners will lose their houses to default and foreclosure before this downturn is over.

The poor homeowner is having trouble keeping up with his payments because he doesn’t earn enough money. Wages have only kept up with inflation – barely – for the last 40 years, as spending has increased. And now, jobs and overtime are becoming harder to get. The unemployment rate rose to 5.7% last month. In Michigan, where they used to make cars at a profit, 8.5% of the workforce is unemployed.

Someone did somebody wrong. But will a few whacks on the derriere – for homeowners and Wall Street – be enough to put the whole episode behind us? Meanwhile, the feds are trying to rescue the homeowners – very publicly. And they’re trying to rescue Wall Street too – furtively.

U.S. workers are competing with the whole rest of the world. They are not necessarily better educated. Nor do they have newer and better factories to work with. Unfortunately for them, the playing field has been leveled. And so, their wages must fall into line with wages in the rest of the world.

Jacques Rueff described how to cut the worker’s wages – “without tears,” no less. Inflate the money supply! Inflation decreases the relative value of wage earnings.

We read in the news that the official inflation rate in the United States has jumped to 5.6% – a 17-year high. Consumer price inflation rose 0.8% in July, more than economists expected. Which just goes to show what a herd of me-too thinkers economists are. Bloomberg had polled 78 of them. Their estimates for July ran from 0.1% to 0.7%. Not a one of them dared to guess the right number.

Multiply 0.8% times twelve and you get an annualized rate of inflation close to 10%. But the same economists who didn’t expect 0.8% also don’t expect inflation to increase. They think the feds have inflation under control; that they’ve managed to pull a fast one on U.S. labor. In today’s globalized economy – especially now that it is slowing down – workers have no bargaining power. And since they can’t expect higher wages, there will be no “wage-price spiral” such as there was in the ’70s. No wage-price spiral, no serious inflation. No serious inflation, no need to raise rates. And with no need to raise rates to fight inflation, the Fed can continue to bailout Wall Street…pump up the money supply…and allow modest rates of inflation to undermine workers’ wages.

It sounds almost too good to be true. Nobody gets punished too severely. The world economy falls – but softly. And those who take the most whacks – the wage slaves – don’t know what’s happening to them anyway.

Will it happen that way? We doubt it.

*** It is vacation season here in Europe. The workers have walked off the job across the road. They were replacing the roof of a 17th-century cottage. But when August came, they put a piece of plastic over the unfinished section and left.

The roads are crowded with people on vacation. Driving can be annoying this time of year. Typically, a car with two bicycles strapped on the back is followed by two cars towing small holiday trailers, followed by a slow-moving delivery truck.

And don’t bother to try to get anything done. Call an office; nobody answers the phone. Look for a plumber…a pastry-maker? Wait until September.

But it is a myth that Europeans don’t work hard. We noticed in our office in Paris that people seem to get about as much done – or maybe even more – than they do in the United States. And even though Europeans don’t put in as much time on the job, they actually work about the same number of hours, says a report in Fortune Magazine.

Germans and Americans work about the same amount of time, says Fortune. The difference is that America has a huge service industry – hamburger flippers, baby-sitters, pet groomers, retailers – doing things that Germans do for themselves – at home. America’s service industry is also largely responsible for the nation’s low wages. In Europe, there are few low wage jobs, higher rates of unemployment, higher earnings for those who do work, and much longer vacations.

Source: The Feast of the Assumption of the Blessed Virgin

Last December, Money Morning’s Keith Fitz-Gerald publicly made the oil price prediction that oil would reach $187 a barrel within three years. In mid-March, he reiterated this price prediction.

Keith says: “We are burning through supplies at a rate that’s four times to five times faster than we’re discovering new reserves. Throw in a few surprises… perhaps a terrorist event… and add in the accelerating use of oil and gasoline in Third World countries, and we have the recipe for far higher prices.”

Read on to find out why Keith has now boosted his oil price prediction from $187 to $225.

Murti’s price prediction seems to have been one of the main drivers behind oil’s climb yesterday, with the AP news wire carrying the headline: “Oil prices rise to record near $123 a barrel on prediction of $200 oil, supply concerns.”

Turns out Murti knows a thing or two about the oil price prediction game. In 2005 he correctly predicted — when oil was at about $55 a barrel — that it would pass $100, which it duly did in January.

“Murti is getting the last laugh,” says Justice Litle in Taipan Daily. “When he first predicted oil could reach a $105 a barrel, way back in March of 2005, oil was trading below $60. The prediction was scorned and laughed at, even as it caused a bump in crude prices… some thought it was just a Goldman Sachs publicity stunt.

“But it was no stunt. Murti’s call was dead right, and all the naysayers were wrong. For the past three years, many have been predicting that the bottom would fall out for oil prices. As crude passed through each new threshold — $70, $80, $90, $100 — there were loud drumbeats for how the price of crude would collapse ‘any day now.’”

Another oil price prediction that is proving scarily accurate is Keith Fitz-Gerald’s forecast that oil prices will reach $187 a barrel within three years. Read on here to find out why Keith thinks oil is heading for $187 a barrel and why the energy ‘experts’ have it wrong again.

Light, sweet crude for June delivery blasted past $122 a barrel to $122.47 before retreating to $122.26 on the New York Mercantile Exchange.

Of course, this is not the first prediction that has put oil prices at $200 a barrel. At the end of last month, here at ContrarianProfits.com, we reported that OPEC President Chakib Khelil said he could see crude oil prices reaching $200 a barrel because the market is driven by the the US dollar’s slide.

We also reported on one oil price prediction that was scarily accurate. In December, Money Morning Investment Director Keith Fitz-Gerald publicly forecast that oil prices will reach $187 a barrel within three years. In mid-March, he reiterated this projection.

According to the paper: “Questioned about a possible rise which would go to $200, the minister did not rule out this eventuality, explaining that this rise is indexed from now on to the fall in the dollar or to the rise in the dollar.”

Peak Oil expert Byron King was ahead of the curve on the role of the dollar in pushing up oil prices. Last week Byron wrote this in his Energy and Oil blog. “A declining dollar hurts all Americans, and every dollar holder in the world. Call it ‘Battered-Dollar Syndrome.’ A declining dollar works against long-term investment. The late economist Kurt Richebacher used to say, ‘A declining currency destroys capital.’ Still, somebody must think it is OK to devalue the dollar, because that is one of the key drivers behind the rising price for oil.

“The world oil supply has become very tight. Demand is rising. The price for oil would ordinarily be going up to clear the market. But with all the ‘extra’ money creation coming out of the US Fed, oil prices are going up even faster. And I should add that just the expectation of loose money is also inflating the price of oil. There is probably $15-20 worth of ’speculation premium’ built into every barrel.

In December, Money Morning Investment Director Keith Fitz-Gerald publicly forecast that oil prices will reach $187 a barrel within three years. In mid-March, he reiterated this projection.

According to Keith colleague at Money Morning, “Not only has this forecast continued to receive widespread play on energy — and investment– related web sites, we’re starting to see similar ‘me too’ predictions being made by some the energy sector’s heavyweight experts: Literally only days after Money Morning reiterated its forecast, Wall Street giant Goldman Sachs said that crude oil prices would reach $175 a barrel in the next two years.”

To find out ways to profit when oil bubble up over $100 a barrel click here.

Crude price forecasts can’t be accurate without understanding Saudi oil production. And the truth of the matter is that Saudi oil wells are drying up.

“Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve,” legendary investor Jim Rogers told Money Morning during an interview in Singapore last month. “It’s astonishing. The figure never goes up and it never goes down. They have produced dozens of millions — billions — of dollars of oil in that period of time.

“If you go to Saudi Arabia, you have to wonder: ‘How could this be? How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?’ The Saudis say: ‘You either believe us or you don’t.’ And that’s the end of the conversation.”

Marc Faber, author of the Gloom Boom & Doom Report, argues that a slowdown in the Chinese economy could put downward on oil prices.

“Let us assume that the unthinkable happens,” says Marc in The Daily Reckoning. “China’s economy slows down sharply, or even contracts – and there are reasons why it could. Commodity prices slump and bring about economic hardship in the resource-producing countries. Imports of capital and consumer goods from Europe and Japan decline. We would then have the perfect setting for a global economic contraction with dire consequences for corporate earnings and asset prices.”

“We’re not predicting this, says Bill Bonner. “We’re sticking with our middle-of-the-road forecast…for neither worldwide prosperity nor worldwide ruin. But there are risks from both directions. And while most people expect a mild recession and quick recovery…almost no one expects the kind of global meltdown Marc imagines. We could see oil below $50…the Dow below 5,000…Wall Street wiped out…and 20 million US families busted.”

A stronger dollar may also play a role in bringing down oil prices, says commodities expert Doug Casey over at Casey Research.

Doug quotes John Kilduff, of MF Global, who says: “A substantial and sustained dollar rebound should be accompanied by a renewed affinity for other asset classes, further hastening a deflation of the commodity bubble.”

Andrew Mickey at Taipan Daily argues that $120 oil is just the start, partly as a result of what’s happening with Russia.

“Russia is not finding any new oil,” says Andrew.

“The situation is already pretty bad, and it’s only getting worse. At the current rate new oil discoveries are being made, total reserves of the world’s second-largest oil producer could be cut in half by 2030. Meanwhile, production could be slashed by 75%.”

Andrew’s colleague at Taipan Daily Justice Litle sees the Fed’s hand at work in rising oil prices.

“The world oil supply has become very tight. Demand is rising. The price for oil would ordinarily be going up to clear the market. But with all the ‘extra’ money creation coming out of the US Fed, oil prices are going up even faster (this is what the chart above shows). And I should add that just the expectation of loose money is also inflating the price of oil. There is probably $15-20 worth of ’speculation premium’ built into every barrel.”

But the market madness of recent days is just the start. Crude oil prices will hit $187 a barrel within 36 months, translating into gasoline prices of more than $6 a gallon, and giving investors one of their biggest profit opportunities in decades, Money Morning Investment Director Keith Fitz-Gerald predicts.

That forecast runs counter to many analysts who are describing the current spike in energy prices as a speculative “bubble” fueled by fearful investors.

“Many people think high oil prices are a bubble. Maybe, but not for long and certainly not given the growth in global demand,” Fitz-Gerald says. “Of course, prices will not stabilize anytime soon. Savvy investors [will realize that] we are still in the very early stages of a generational game with the potential to be played for great profits.”

Skidding Greenback Behind Crude Price Spike

Investors have been pouring money into oil and other commodities amid spiraling worries about a U.S. recession, a spike in global inflation and a U.S. dollar that’s in a freefall against such currencies as the euro.

The greenback hit a new record against the euro yesterday (Wednesday), falling to $1.5513 per euro, the lowest since the pan-European currency debuted in 1999. Oil prices have been in a scorching uptrend. Crude prices hit a record $110.20 a barrel on the New York Mercantile Exchange (NMX) yesterday, their 11th new high in the last 12 trading sessions.
Crude oil prices have jumped 8% so far this month, and are up 18% since the start of February and have surged 86% in the past 12 months. At this time a year ago, crude oil was trading at $58.92 a barrel.

Consumers are no doubt feeling the squeeze: Gasoline prices at the pump jumped to a new record of nearly $3.25 a gallon yesterday, as investors shrugged off positive news about inventories and demand. The U.S. Department of Energy said that stockpiles of oil and gasoline rose last week for the eighth time in nine weeks. And the Energy Department, the International Energy Agency and the Organization of the Petroleum Exporting Countries have repeatedly said that demand for oil and gas will advance at much lower rates than they’d previously projected.

Even so, gasoline is now expected to continue its march, and prices at the pump could reach $3.75 a gallon by spring.

Money Morning’s Fitz-Gerald, a longtime energy bull, says that investors and consumers can expect more of the same. More than five years ago, when crude oil was trading at a price below $20 a barrel, the former longtime professional trader publicly predicted that crude prices would reach the century mark – $100 a barrel – within a decade.

Now that it’s eclipsed that psychologically important price point, a number of experts have been predicting oil prices will move even higher.

In a March 6 report, Goldman Sachs Group Inc. (GS) boosted its oil-price target for 2009 to $105 a barrel, up 17% from its earlier target price of $90. According to Goldman, non-OPEC production is ready to plateau while growing consumption in China and other parts of emerging Asia is stoking global demand and constricting supplies.

Indeed, China – the world’s second-biggest consumer of crude – increased its oil imports 18% in February, and simultaneously halted exports in order to meet rising demand for oil and gasoline.

Matthew R. Simmons, chairman of the Houston-based investment bank Simmons & Co. International, told Bloomberg News that oil is headed for $120 “in the short term. I’m one of the few people who’s not surprised to see crude at $107. I still think it’s a bargain” at current price levels.

If oil hits these lofty levels, gasoline prices will exceed $4 a gallon at the pump, though some experts say that gas prices also will drop back before they reach that level.

However, many analysts contend that the most recent run-up in oil prices is clearly a speculative bubble. The key reasons behind that assertion:

• Oil prices have risen 8% already this month – meaning that advance has come in only eight trading days. It’s a pace that isn’t likely to continue. Whenever asset prices rise that sharply in that short a time period, it’s symptomatic of a speculative frenzy, meaning prices are likely to retrace some of their steps as investors take profits.

• The advance has been dollar-driven, and hasn’t been based on such fundamental factors as reserves, stockpiles, refining capacity, or demand. Some analysts say that these factors warrant oil prices in the neighborhood of only $70 a barrel. If the dollar’s plunge stops, or if the greenback reverses course and regains ground against other key currencies, traders won’t continue to view oil as such a great hedge against the dollar. They’ll dump oil, as will the speculators who are piggybacking their way to profits on this trend.