DrumBeat: November 27, 2006
Posted by threadbot on November 27, 2006 - 9:30am
Topic: Miscellaneous
Insurgents target oil sources, cause massive infernos
BAGHDAD, Iraq (CNN) -- Insurgents Monday targeted key oil sites in Iraq, firing mortar rounds into an oil distribution center in northern Iraq and bombing a pipeline in a southern suburb of Baghdad, Iraqi officials said.The attack on the oil distribution center triggered a massive fire that halted the flow of crude oil to Iraq's largest refinery, a Kirkuk police official said.
On November 25, our own Dave Cohen was a guest on Jim Puplava's show, Financial Sense Newshour. You can download the audio here. Dave is in the fourth hour, about 2/3 of the way through.
The first hour, where Matthew Simmons discusses the CERA report, may also be of interest.
NATO eyes greater role in energy security
NATO leaders will study at a summit starting on Tuesday whether the alliance should take more action to avert potential threats to energy supplies, for example by mounting patrols of key shipping lanes.
U.S. auto sales slowing say forecasts: report
After a string of strong years, U.S. auto sales are slowing and an increasing number of forecasts say sales could fall next year to their lowest in nearly a decade, the Wall Street Journal reported on its Web site on Monday.
Raymond J. Learsy: The Willy Sutton Theory of Oil Pricing
Expanding on Willy Sutton, America's notorious bank bandito's famed dictum, "that's where the money is" today's oil industry rationale for the pricing of oil could be capsulated by, "that's where the money is, but hey, don't worry, the system is still working"!
Now is the time to think local first
I am currently reading Bill McKibben's new book, (due out in March) "Deep Economy." As usual, Bill has written a compelling book – this time about the benefits of thinking and acting on a local scale. He points to climate change and peak oil as the compelling forces behind this proposed shift. We need to move towards localism to both stave off the worst effects of these circumstances and to cope with them.
Concerns arise as Oman oil futures gain viability
SINGAPORE: Oil industry enthusiasm over Oman’s landmark pledge to use a new futures contract is being tempered by concerns over the fine print, which may yet rob the market of its best hope for a more vibrant marker.
FOCUS - Sinopec-Saudi refinery deal to boost Aramco foothold in China
China Petroleum & Chemical Corp (Sinopec) is expected to sell a 25 pct stake in an east China refinery to Saudi Aramco in a deal that analysts said will give the Saudi company a major boost in China's fast growing market.
New Saudi alignment with China could challenge US
China’s insatiable demand for oil — and Saudi Arabia’s position as the world’s top exporter—have become the basis for a trade partnership that analysts say could upset Riyadh’s decades-old oil-for-security relationship with Washington.
The GTL-Gas To Liquids World Comes Together at GTLtec07 in Doha Qatar
U.S. Opposes Long-Term Gas Deliveries from Iran to Georgia
U.S. Ambassador to Georgia John Tefft announced that his country is opposed to a long term strategic cooperation between Georgia and Iran regarding natural gas deliveries.
Lighting the key to energy saving
A global switch to efficient lighting systems would trim the world's electricity bill by nearly one-tenth.
How mirrors can light up the world: Scientists say the global energy crisis can be solved by using the desert sun
Making renewable energy a reality
Clean Coal Power Plant Planned For 2011 In Norway
OSLO - An international group of companies launched a plan on Monday to build a novel coal-fired power plant in Norway by 2011 that would curb global warming by capturing 95 percent of all greenhouse gases emitted.
GM set to detail shift to fuel-saving technology
LOS ANGELES - Stung by criticism that it conspired to kill the electric car, General Motors Corp. (NYSE:GM - news) is preparing to detail its commitment to new fuel-saving technologies, including new electric vehicles, according to people familiar with the automaker's plans.
Alternative energy powers up new jobs: Rising demand for solar, wind, biofuels brightens outlook for manufacturing in U.S.
Transition Culture Interview with Richard Heinberg - Part One… Peak Oil
Pickens Predicts Record 2007 Oil Price
"I keep thinking we're right at the bottom on oil," Pickens, who has correctly predicted rising energy prices for the past three years, said in a Nov. 22 interview. "I don't see why the run is over if the global economy continues to grow." When the prices for oil, fuels and natural gas start to rise may depend on how quickly winter weather spreads across the U.S., Pickens said. So far, warm temperatures have kept demand for heating fuels in check.
Iraq declares war on petroleum smuggling
BAGHDAD, Iraq - Smugglers were loading gasoline on a ship at an illegal port in southern Iraq when police surprised them with a raid that ended with five smugglers and two policemen dead.The October clash at Abu Flus was one of many attempts by security forces trying to stop smuggling of Iraqi petroleum products to neighboring countries, a practice that is costing the country billions of dollars every year.
Charges advised in oil-for-food probe
CANBERRA, Australia - An Australian inquiry on Monday recommended police pursue criminal charges against 12 business officials in connection with multimillion-dollar kickbacks that the country's monopoly wheat exporter paid under the U.N.'s Iraqi oil-for-food program.
Toyota engineer who helped develop Prius dies in plane crash
Leftist economist wins Ecuador election: Chavez-friendly candidate trounces Bible-toting banana tycoon in presidential runoff.
The Denver Post from Colorado:
And this is when the economy is "expanding" and when we have "low" unemployment. It seems to me that someone with the initials JHK predicted all of this.
And more SUVs parked in front of the house than drivers living in it is not a sign of insanity, it is a measure of how much your neighbors will envy you.
Ah, the American Dream.
Only a tiny fringe can imagine this becoming a nightmare, it seems, and they are easily ignored, right?
But as an opinion, I am not sure Kunstler has really thought out what it means when this all comes crashing down, as he so fervently desires - watching his problems dealing with a local weather related disruption a year ago, I'm not sure he has actually understood what he predicts.
http://www.denverpost.com/business/ci_4719353
It looks half-local to me. The other half is the unfortunate combination of a housing bubble coinciding with a collapse of lending standards. These poor people should not have been given loans.
I'm pretty sure they were given them because the debt is somehow passed through to FDIC insured CDs:
https://bank.countrywide.com/scontent.aspx?cmtag=Content-cds
I have a CD like that. Did I give those unfortunates a loan with 100% financing and adjustable rate? Maybe. And sad if that's what happened.
In Ohio, we didn't really see much of a boom in real estate and so we've avoided a bust. Home prices are just flat. I guess that's one good thing about living in a dull state to which no one would reloacte unless they had to. Anyway, there are a lot of these neighborhoods where people were given loans they never should have received. The problem of unloading these forclosed homes is exacerbated by the fact that the builders are still building the exact same house in the next phase of the development. Who wants to buy a 2 or 3 year old foreclosed home when you can buy the exact same home brand new. the thing that puzzles me about it is that with the most obnoxious lending practices, the builder is also the lender. Ohio has laws forbidding these predatory type loans but has an exception when it is "for sale by owner", so these big builders build 10's of thousands of homes then they act as the bank when it sells so that it can be FSBO and they can avoid these laws. So what i don't understand is how they can continue to give out these loans and hold all these forclosed homes. They're not screwing the bank, bc/ they are the bank, they're screwing themselves. Any real estate moguls here that explain to me what I'm missing here?
You, as an individual, can buy a small $100,000 slice of a Ginnie Mae. China is one of the big buyers (higher yield than US T-Bills). I am unsure of the sophisicated methods of reducing risk (they are there) and layering defaults. (One can buy the last xx% of value in a portfolio, so that mortgage losses hit those that hold the upper layers).
Hope this helps,
Alan
BTW, Housing bubble burst is good for New Orleans. Should drive down cost of materials and we will get migrant construction workers.
I know, I know- just save your comments about the cost of RV'ing and the future of RV parks. My in-laws are doing very well right now and they're in their 60's. They just need to make it a few more years then they'll retire. Irrespective of PO, no one in the younger generation is willing to take over the family business from them when they retire.
I think his idea was that people in or around the international business community was more caught up in this thing than others.
(I think it was "Irrational Exuberance" by Robert Shiller. I see that I talked about the book here back in March.)
A Short History of Financial Euphoria
by Galbraith which is worth the read IMO
Read this one for the process. Really good I think. Here is just a snippet.
If These Are Bubbles, Where Is All That Hot-Air Money Coming From?
November 25, 2006 by Katy Delay
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=60572
John
All this means to me is that when things unravel, the poor, regressively taxed taxpayer gets saddled with the bill from bailing out the fed. agencies (S&L crisis writ large), at the same time they are on the street because their over-financed home has been repo'd. Kind of like the Dragon swallowing its tail here.
SOOOOO, Joe Sixpack walks on his house, foreclosure.
THEN the Pension funds where Joe works/used to work, now have losses because of foreclosure.
Joe has no pension, because the pensions bought the securitized bonds.
In essence, Joe's purchase of the house he can't afford, ruins his pension fund.
Financial Wizardry & Collapse
It is in no way a local problem. There is a nationwide housing glut and we are on the cusp of a nationwide housing bubble bust.
And real estate does not always go up. In Los Angeles in the last cycle, prices peaked in 1989 and bottomed out in 1997. In that interval, L.A. lost 40% of its real value. But they are back up again now and headed for an even greater collapse. The same thing happened in Texas when oil prices collapsed in the 1990s. Billions were lost in Houston and Dallas real estate when prices collapsed.
Ron Patterson
http://www.msnbc.msn.com/id/15416909/
Ron Patterson
Some neighborhoods which had been undesirable in the past have been able to use their new boom-equity to give themselves makeovers, to bootstrap themselves a bit. It would be sad to see those sink back post-boom.
The problem this time round is not how regional various markets are, but the sheer scale of financial investment, and the lack of any alternative to that financial structure, which seems to be built mainly on sand - 11 trillion dollars of conjured 'equity,' which is just starting to be recognized as 11 trillion dollars of additional debt that somebody is holding the bag to.
Some people seem to think that the Chinese are the unlucky ones, but I don't really think so - after all, they still make things other people want to buy. And they own the debt, they don't have to pay it back - unless Americans have finally gotten to the point that they will simply walk away from any obligations concerning the future.
Oh. Hmmm.
This is not my field and something I can barely puzzle about, but I wonder what fraction of the debt is in unbacked securities (and derivatives?). In a widespread default, they'd get burned ... but maybe not take the backed securities with them?
Mortgages : $12.6 trillion
Treasury bonds : 4.8
Corporate " : 3.1
Municipal " : 2.3
Consumer Credit: 2.3
Other : 2.5
------------------------------------
Sub-Total $27.6 Trillion
That's the non-financial sector of the economy only.
Here's the debt of the financial sector:
Corporate bonds : $ 4.5 trillion
Agcy+GSE mtg. pools : 3.8
GSE bonds : 2.7
Open mkt. paper : 1.5
Other : 1.0
-------------------------------------
Sub-total : $13.5 trillion
Grand Total : $41.1 trillion
That's 41.1 with 12 zeros after it.
Never before in the history of mankind have so many zeros meant so little to so many people.
Seriously, I think there is a collective madness to this.
hmm then how about
1,75C,D65,00B,000
no i guess that doesn't work either?
We won't have to worry until we reach महाशंख.
Ohmmmmm...Ohmmmmmmm.....
(not that I'm doubting their accuracy).
They don't include US trade deficit, or do they? And they don't include the trillions of future Social Security and Medicare obligations.
See here
It is a PDF file.
If you wish to see even more of such statistics see here. The relevant section is "Flow of Funds Accounts". The rest of the sections are very interesting, too.
The trade deficit is not debt, it's the imbalance between imports and exports. It does have influence on the debt, but not directly.
The debt of the govt. is 9 trillion, when the social security so called "trust fund" debt is included. It all depends on how you do the accounting.
For your guide, $41.1 trillion is abt. 330% of GDP and it is atrocious. By FAR the largest overall debt of any nation.
Is the level of US corporate debt higher than other countries? Is it too high? Should corporations reduce debt levels? I think the answer is no in all three cases.
US mortgage debt is high because their is a large percentage of homeowners and they have access to capital markets. There is nothing wrong with people holding mortgages and nothing on the face of it.
If Americans owe each other debt, it is not necessarily a problem at all. The level of US foreign debt, the government's balance of payments shortfall and the low level of savings among Americans are real issues. But the parade of numbers above is basically meaningless.
Leaving aside much complexity again, America has tended to buy things like plasma TVs or Ipods or jet skis or Nikes or SUVs or clothing or toys or granite counter tops, or whatever else would reflect classic consumer consumption.
What they haven't seem to bought is factories, maintained infrastructure, or improved things like public health systems. For example, check out the infrastructure along the Gulf Coast - if America had gone into massive debt to restore what was destroyed, that would be one thing, but to simply keep building more houses in the desert is something else.
And another thing which is somewhat different with debt in the U.S. and other countries - the normal level of credit card interest would be illegal as usury in most other countries - and the amount of money Americans spend servicing their personal debt is much higher than in other countries. But as noted, in America, that works out, since the Americans that can't do math are paying the good salaries of those who know how to make money from that fact.
However, transferring money is not quite the same thing as investing it in an electrical system which can handle the challenges which America will all too clearly be facing in the next decade.
Debt (leaving aside the issue of debt peonage at the personal or national level) can be considered neutral - it is the purpose of the debt that is important.
Debt can be considered neutral. In some applications (corporate debt, mortgages, student loans), it is frequently good. In some it is bad (usury, excessive consumption, to spend more than one makes - whether a government or an individual)
I don't deny that there are several aspects of the American debt situation that are enormous problems. Using credit cards to buy stuff that costs more than one will earn is a clear example. I do think it is going to come to a screeching halt at some point as it seems clear that the US can not borrow to consume forever.
None-the-less, just stacking up total US debt and getting scared by the enormity of the figure is not constructive. Nor does it present an accurate depiction of reality. The massive figure in the original post contains both good and bad debt - although I may admit the overall picture is worse than neutral.
I don't think it is entirely accurate to say that the US has bought only big screen TVs and invested nothing in infrastructure or equipment. A large portion of mortage debt is good. I am sure most of the corporate debt is going to productive purposes (debt is subject to greater scrutiny than equity spending). Google is worth more than the GDP of Thailand or Indonesia - and probably more than all of their factories. The US has also invested in a lot of manufacturing capacity. The just chose to locate it in China.
The Economist recently observed that modern business realized that the value creation process could be divided into three steps: design, production and marketing. Of these production is the least important, most volatile and most easily replaced. That is why US business has wisely chosen to outsource them and keep the high value aspects. I think this presents a huge, and potentially insurmountable, problem for the class of Americans who would work in factories. However at a system level, I don't think it is a problem.
I know people love to fixate on the idea that the US has completely lost its ability to "attach uppers to lowers" and whatever else they do in factories. It is a common belief that making something solid, like a cigarette lighters or washing machines is good, but making something intangible such as software, design or finance is bad. I don't agree. Comparative advantage is alive and well.
None of this is to say that the US is in great shape (I don't think it is) or that debt doesn't present a problem (I think it does). Just that the uneducated and hysterical obsession with an imminent American crash that fill the comments here is closer to wishful thinking than analysis.
And in turn, you can see how well having factories works compared to the engineering talent - the Russians shipped home every factory they could get their hands on at the end of WWII, both in Germany and in the parts of Japanese owned China, and they still make the same basically 1942 knock-off BMWs under a couple of different names.
There was an interesting book which ties both of these threads together in a more than tangential way, 'The Japan That Can Say No' - a good overview is found at http://en.wikipedia.org/wiki/The_Japan_That_Can_Say_No Intriguingly, according to the less than always reliable Wikipedia, 'The authorized 1991 Simon & Schuster translation by Frank Baldwin (out of print) did not include the essays by Morita.' That is, the writing of Sony chairman Akio Morita somehow slipped through the cracks, according to his own wishes. And the other author, Shintaro Ishihara is a fairly prominent political figure still. Of course, it was a book written at the peak of Japan's economic boom, at the very end of the Cold War, and parts of it seem to be filled with hubris of the sort which precedes a great fall. And it is hard to know if it was written merely for a domestic Japanese argument.
I do know that in the mid 1980s, as the Japanese started to dominate chip manufacture, especially of chips used in things like cruise missiles, that the U.S. created Sematech in response. A good book review can be found here - www.hbs.edu/bhr/archives/bookreviews/76/2002springadavies.pdf
However, living around DC, the emphasis I remember most was on ensuring that America could fight a war without relying on foreign manufacturers providing the components, which is where the point of the Japanese book comes in.
The thing is, the clear recognition of a challenge based on reality (a cruise missile requires x chips, we require y cruise missiles, and no one in America makes chip x) and the meeting of that challenge (forget ideology, how can we best foster a doemstic industry making chip x) currently seems to be the sort of thing which America is no longer capable of. Not that it can't do it, merely that it is very difficult to imagine it in today's America. Especially one that is used to ignoring the future while spending today.
As this is straying quite far from debt, suffice it to say, domestic manufacturers, like domestic food production, and a lack of external debt, are classic measures of strength in a geopolitical sense.
I've followed the debt/housing bubble thing for some time. I always like to point out that a large part of this debt is owned by South Koreans. American banks sell it. Simmons says - so goes Arabia, so goes the world. I say, so goes the US, so goes the world. And the world doesn't want to go down. Hello?