Monday, June 30, 2008

60 IS The Magic Number for Cloture

Obama 317 McCain 194 Ties 27
Senate Dem 55 GOP 45
House Dem 238 GOP 197

News from the Votemaster

Oil hit $143 barrel this morning in early trading, an all-time record. If it stays there, gas at $6 a gallon is a real possibility and will focus the voters' attention firmly on the economy. Of course, there is nothing Barack Obama or John McCain can do to change the short-term price of oil, but they probably won't mention that. Still, if gas prices go through the roof, the economy will dominate the election and poll after poll shows the voters prefer the Democrats to be in charge of the economy.

High oil prices don't just affect consumers. State and local governments are also feeling the pinch. In Colorado, in some large counties, the sheriff is no longer sending deputies out on patrol. In Ohio, police are driving golf carts because they get better mileage. Oil is also a raw material in many manufacturing processes, and higher oil prices means more expensive products. More expensive products means more inflation. More inflation means the Fed will hike interest rates. Higher interest rates means the stock market goes down. There are huge implications to $143 a barrel oil as we may soon find out to our dismay.

CQ Politics has a story on the North Carolina Senate race between Sen. Liddy Dole (R-NC) and state senator Kay Hagan (D). Some polls have shown it to be a close race. With Republicans almost sure to lose Senate seats in Virginia, New Hampshire, Colorado, and New Mexico, and huge battles expected in Alaska, Oregon, Minnesota, Mississippi-B, and Maine, another competitive race is the last thing Senate Republicans need. Senate minority leader Mitch McConnell (R-KY) said yesterday that he does not expect to win back the Senate. This is an extraordinary statement for the leader of either party to make. It means McConnell is expecting a massive loss in the Senate. Our estimate at the moment is 6-8 seats. It is unlikely the Democrats make it to 60, but if seats like North Carolina are in play, there is a small chance it could happen.

We have three new presidential polls today. In Arizona, John McCain has a comfortable lead, although perhaps a bit smaller than one might have expected given that it is McCain's home state. Still, unless Gov. Janet Napolitano is Obama's Veep, McCain should win Arizona easily. McCain is also comfortably ahead in Georgia for the moment, but this is a state to watch. Fully 6% of the respondents said they would consider voting for Bob Barr (L). Also, Obama will attempt a massive voter registration effort among black voters here. Finally, Virginia is a statistical tie, with Obama a hair ahead. This confirms what most political analysts have been saying for a while: the red-blue map is changing, with states like Virginia and Colorado becoming very competitive. These two states alone have 22 electoral votes. If Obama wins all the Kerry states and these two, he gets 274 and becomes President. The battles in these two states will be fierce, In addition Nevada and Montana are also potentially in play.

State Obama McCain Start End Pollster
Arizona 40% 49% Jun 25 Jun 25 Rasmussen
Georgia 43% 53% Jun 26 Jun 26 Rasmussen
Virginia 49% 47% Jun 20 Jun 22 SurveyUSA

ARG ran a poll in New Hampshire asking whether people approve/disapprove of George Bush. It was 16% approve, 75% disapprove, 9% don't know. The 75% is large, but sort of expected now. But how can 9% of the people not know? Either you like Bush or you don't. How can anyone not know after 7 years? The significance of the New Hampshire poll is that New Hampshire is probably the only Kerry state McCain might realistically win. And with such a bad approve/disapprove ratio for Bush there, McCain will have to distance himself from Bush substantially. His attraction in NH is that he is sometimes seen as a maverick. But saying "I approve of the Bush policies, I will just execute them better" is not going to be a winning slogan in New Hampshire.

Here is an (unsurprising) Senate poll.

State Democrat D-pct Republican R-pct Start End Pollster
Kansas Jim Slattery 34% Pat Roberts* 51% Jun 22 Jun 23 SurveyUSA
-- The Votemaster

Projected Senate: Dem 55 GOP 45:

US military deaths in Iraq war at 4,113

As of Sunday, June 29, 2008, at least 4,113 members of the U.S. military have died in the Iraq war since it began in March 2003, according to an Associated Press count.

The figure includes eight military civilians killed in action. At least 3,350 died as a result of hostile action, according to the military's numbers, last updated Friday at 10 a.m. EDT.

The British military has reported 176 deaths; Italy, 33; Ukraine, 18; Poland, 21; Bulgaria, 13; Spain, 11; Denmark, seven; El Salvador, five; Slovakia, four; Latvia and Georgia, three each; Estonia, Netherlands, Thailand, Romania, two each; and Australia, Hungary, Kazakhstan, South Korea, one death each.

___

The latest deaths reported by the military:

+ No deaths reported.

___

The latest identifications reported by the military:

+ No identifications reported.



How Much Is A Billion?

Understanding The Budget

Politicians -- at the state and federal level -- talk in numbers that most folks can't visualize.

So how much is a billion? First, we have to clarify that we're using the US system of numbers (short scale), not the British system (long scale).

1 Thousand 1,000 103
1 Million 1,000,000 106
1 Billion 1,000,000,000 109
1 Trillion 1,000,000,000,000 1012
1 Quadrillion 1,000,000,000,000,000 1015
1 Quintillion 1,000,000,000,000,000,000 1018

The chart, however accurate, doesn't put the number -- one thousand million -- into perspective. Here are some attempts, collected from around the Net:

  • If we wanted to pay down a billion dollars of the US debt, paying one dollar a second, it would take 31 years, 259 days, 1 hour, 46 minutes, and 40 seconds. To pay off a trillion dollars of debt, at a dollar a second, would take about 32,000 years.
  • A tightly-packed stack of new $1,000 bills totaling $1 billion would be 63 miles high. In comparison, jet planes fly at 30,000 - 40,000 feet (5.7 - 7.7 miles high).
  • About a billion minutes ago, the Roman Empire was in full swing. (One billion minutes is about 1,900 years.)
  • About a billion hours ago, we were living in the Stone Age. (One billion hours is about 114,000 years.)
  • About a billion months ago, dinosaurs walked the earth. (One billion months is about 82 million years.)
  • A billion inches is 15,783 miles, more than halfway around the earth (circumference).
  • The earth is about 8,000 miles wide (diameter), and the sun is about 800,000 miles wide, not quite a million.

Playing the McVictim for the McMedia (Did I already mention that the GOP can't run on their record so the shitslide has begun?)

Mr. McCain's 12 years of running for President has given him quite a bit of practice on how to garner the sympathy of American voters, and play to the media, with stories of his capture over North Vietnam and with regard to his war record. The media, btw, won't be able to ride on grandpa McCain's RV and jump on the couch after milk and cookies any more, he has just bought a nice shiny new airplane for his campaign trips around the country. Yeah, it's called the "Straight Talk Express" too. Wonder if this means CNN will have to get an airplane and christen it the "Campaign Express" (like it's primary coverage RV) for the fall?


Sunday, June 29, 2008
Honestly, besides being tortured, what did McCain do to excel in the military?

John Aravosis (DC) · 6/29/2008 10:23:00 PM ET
It's not "nice" to ask the question, but it's actually a pretty good question. Yes, we all know that John McCain was captured and tortured in Vietnam (McCain won't let you forget). A lot of people don't know, however, that McCain made a propaganda video for the enemy while he was in captivity. Putting that bit of disloyalty aside, what exactly is McCain's military experience that prepares him for being commander in chief? It's not like McCain rose to the level of general or something. He's a vet. We get it. But simply being a vet, as laudable as it is, doesn't really tell you much about someone's qualifications for being commander in chief. If McCain is going to play the "I was tortured" card every five minutes as a justification for electing him president, then he shouldn't throw a hissy fit any time any one asks to know more about his military experience. Getting shot down, tortured, and then doing propaganda for the enemy is not command experience. Again, it's not nice to say say, but we're not running for class president here. We deserve real answers, not emotional outbursts designed to quell the questions.

Labels:

John McCain 2000: The Swiftboaters' First Mission

Posted September 30, 2006 | 08:16 PM (EST)

Imagine that it's 1997, and you're a strategist trying to figure out how to get George W. Bush, of all people, into the White House. Your candidate's record is, to put it mildly, not so great: he had been elected Governor of Texas in 1994 and before that ... well ... never mind. His term as government is marked by cronyism and corruption, and if elected to the nation's highest office it promises to be more of the same.

If you're going to win this you will need to mask your candidate's record and agenda. You need a strategy that turns your opponent's advantages into disadvantages, and, most important, that distracts everyone from your own candidate's awful record. And to accomplish this you need a team that is willing and cynical enough to do what it is going to take to sell your guy. Bush's top strategist Karl Rove learned his licks alongside Lee Atwater. Rove and Atwater went back a long ways,

Back in 1972, the 22-year-old Rove was a candidate for chairman of the College Republicans. The rambunctious Atwater was his Southern regional coordinator.
What kind of campaign schooling did Rove receive? In 1981 Atwater, then a Reagan strategist, said in an interview,
You start out in 1954 by saying, 'Nigger, nigger, nigger.' By 1968 you can't say 'nigger' - that hurts you. Backfires. So you say stuff like forced busing, states' rights and all that stuff.
In 1988, Atwater ran Bush's father's campaign against Michael Dukakis,
During the election, a number of false rumors were reported in the media about Dukakis, including the claim by Idaho Republican Senator Steve Symms that Dukakis's wife Kitty had burned an American flag to protest the Vietnam War, as well as the claim that Dukakis himself had been treated for a mental illness.
Rove's own background follows a similarly questionable ethical path,
Rove's first foray into politics involved gaining entry to the office of Alan Dixon--a candidate for state treasurer in Illinois in 1970--stealing some campaign stationery and printing and distributing a fake invitation to Dixon's campaign headquarters, promising "free beer, free food, girls, and a good time."
Later, working for Nixon's "dirty tricks" team,
...Rove infiltrated Democratic organizations on behalf of Nixon's infamous 1972 campaign. Rove's formidable talents came to the attention of George Bush Senior, then incoming Republican National Committee chairman, and the rest is history.
Finally, in Texas,
In 1986, Rove, by then in Texas, announced that his office had been bugged by Democrats during a gubernatorial race. The accusation, which spurred an FBI investigation, never panned out, leading some critics to charge that Rove had bugged his own phone.
So you've got your Rove on. Next, you line up your operatives - people like Tom Synhorst and Ralph Reed. If you've got a stinker to sell, it's a good idea turn to the very best at selling real stinkers. Tobacco marketers were so good that they could convince people to kill themselves with your product and hand over their money to you in the process!

Before moving into political consulting, Tom Synhorst had been employed by the R.J. Reynolds Tobacco Company coordinating RJR's "grassroots" efforts. Later he had worked on George W Bush's 1994 campaign for Governor of Texas. Mother Jones, in 1996's groundbreaking story Tobacco Dole,

Synhorst ... illustrate[s] an important aspect of the tobacco industry's survival plan: Create grassroots front groups to make pro-tobacco legislation handed down by state and national politicians appear to be the public's will. These groups, many posing as "anti-tax" organizations, are key to the tobacco industry's efforts to win over the anti-big government segment of the electorate.
Known as the "Johnny Appleseed of Astroturf," Synhorst founded the firm Direct Connect, Inc., or DCI in 1988. DCI continued to work for tobacco companies as well as political campaigns and the NRA, specializing in "strategic message development and delivery," and using Astroturf methods to make it appear to members of Congress that there was popular support for their positions.

Ralph Reed, former head of the Christian Coalition (and now implicated as part of the Abramoff lobbying/corruption ring) is a help, because at some point you want to get your candidate in front of the leaders and followers of the theocratic Right - and especially get their machine behind you. Reed was probably helpful in facilitating a relationship between Bush and the Council for National Policy. (See here, here, here, here and here.)

And if you want to mask Reed's involvement, just "park" him at Enron and Microsoft. (see also) According to CNN,

The White House acknowledged Friday that in 1997, as George W. Bush was deciding whether to run for president, his senior political adviser Karl Rove recommended GOP strategist Ralph Reed for a consulting job with Enron Corp. Reed, former head of the Christian Coalition, went to work for Enron as a strategist, making from $10,000 to $20,000 a month, according to The New York Times.
After you've got your operative ducks in a row there's those pesky primaries to get through (ask Joe Lieberman about that). In the primaries you face John McCain, an experienced Senator, a man perceived as a military hero who had spent five years as a POW, and as an honest "straight talker." If you are a strategist for George W. Bush, of all people, how do you go up against that?

And then following the primaries you still have the general election where you'll be up against Al Gore, the most involved Vice President in history, coming from four years of peace and prosperity, a former seminary student, Vietnam veteran, with one of the strongest records of any Senator.

But one of the advantages you have for the coming campaign is... almost all the money in the world.

Turning McCain's record into a liability - how they did it.

If you're really, really cynical, why not turn a record of honorable record of military service and dedication to America into a liability!

From Patriot Project's The Swiftboaters Are Back in the Water,

... Bush surrogates (several later involved in the Kerry swiftboating effort) skillfully turned McCain's service record against him (thereby deflecting questions about Bush's own service record.) They planted stories that the torture McCain suffered as a POW had brought about mental instability, including rumors that he had been programmed as a "Manchurian candidate" who "collaborated with the enemy." No longer could McCain use the fact that he had endured torture as evidence of dedication to serving his country.
And as explained in Patriot Project's Did Paul Galanti Sell His Medals,
In the 2000 South Carolina Presidential primary Bush surrogates circulated stories that McCain's five years as a POW had made him "mentally unstable," gave him a "loose screw," that he "committed treason while a POW" and "came home and forgot us." The stories also called McCain "the fag candidate," called his wife a drug addict, said McCain "chose to sire children without marriage" and had "a black child" (the actual wording of that last smear from the flyers and e-mails that circulated is not printable here).

And when McCain responded by asking whether this kind of smear campaign showed that voters should think twice about trusting Bush, saying Bush was "twisting the truth like Clinton," Rove was able to turn that against McCain¸ by accusing McCain of "going negative." Unlike Rove and Bush, McCain hadn't understood the value of attacking with surrogates.

This information was passed using flyers, e-mails, word-of-mouth and "push polls." As McCain's campaign manager, Richard H. Davis, later wrote in his article about what happened, The anatomy of a smear campaign that,
Anonymous opponents used "push polling" to suggest that McCain's Bangladeshi born daughter was his own, illegitimate black child. In push polling, a voter gets a call, ostensibly from a polling company, asking which candidate the voter supports. In this case, if the "pollster" determined that the person was a McCain supporter, he made statements designed to create doubt about the senator.
But other Bush surrogates threw smoke into the air, accusing the media of making up the whole story
Thursday night ABC, CBS and NBC all featured full stories about John McCain's indignation over "push polling" by the Bush campaign -- based solely on the second-hand recitation by a mother about a phone call her 14-year-old son supposedly received tagging McCain a "fraud" and a "liar."

While all the stories included denials from the Bush campaign that they made any such calls, by making the allegation the basis of their campaign story of the night, only ABC ran a second story on another subject (see item #2 below), the networks served the agenda of the McCain campaign.

etc...

Synhorst's firm specialized in push-polling. According to a Feb. 11, 2000 Washington Post story,

[Bush campaign spokesman Ari] Fleischer said the advocacy calls were being made by the firm of Feathers, Hodges, Larson and Synhorst, a Phoenix-based company that has worked extensively for the Bush campaign to identify and turn out voters in key states.
Reed also had his own background in nasty, smearing push polling. According to Josh Marshall,
Back in 1996 Reed was the one who helped save Bob Dole in Iowa by orchestrating a campaign of so-called "push-polls" attacking rival candidate Steve Forbes for, among other things, tolerating his father's "alternative lifestyle."

And, also according to Marshall,

Reed's frequent partner in "astroturf" work is Tom Synhorst. Let's run through some of his exploits in the "astroturf" biz. Synhorst's main shop is Direct Connect Inc., DCI. DCI did the "astroturf" work for the 'Health Benefits Coalition,' trying to kill the Health Care Bill of Rights back in 1998 (Nat. Journal July 11, '98); DCI also spearheaded various efforts by the tobacco industry and the NRA; it also helped set up Americans for Competitive Technology and Americans for Technology Leadership, two Microsoft front groups agitating against the Justice Department's antitrust suit.
(Remember that Reed working for Microsoft at the same time as he was employed as a Bush campaign strategist.)

And finally, let's bring in the Wyly Brothers. The Wyly Brothers ran their own smear-McCain operation. According to the Dallas Morning News,

During Mr. Bush's 2000 primary fight with John McCain, the [Wyly] brothers backed a $2.5 million television ad campaign praising Mr. Bush's environmental record in Texas and attacking Mr. McCain's Senate votes. Until that point, it was Mr. Bush whose record had come under fire from environmental groups.
The ad's sponsor was identified only as "Republicans for Clean Air," a new group at the time...
So what is up with McCain today, turning around and joining up with the very foes who smeared him in 2000?

From the Dallas News story,

Earlier this year, the Wylys' relationship with Mr. McCain took a surprising turn. They each sent $10,000 checks to his political action committee and were set to co-sponsor a Dallas fundraiser on his behalf.

And from ABC's April 23, 06 story, Gearing Up for '08? McCain Befriends Old Enemies,

Also co-chairing the [McCain] event are Rob Allyn, a Texas PR man who was paid $46,000 to produce the Wylys' "Republicans for Clean Air" ads, and businessmen Albert Huddleston and Harold Simmons, who gave $100,000 and $3 million respectively to the controversial independent group, "Swift Vets & POWs for Truth." McCain called "dishonest and dishonorable" the "Swift Vets" group's 2004 campaign ads that helped sink the presidential chances of Sen. John Kerry, D-Mass.

... Also co-chairing the event are Rob Allyn, a Texas PR man who was paid $46,000 to produce the Wylys' "Republicans for Clean Air" ads, and businessmen Albert Huddleston and Harold Simmons, who gave $100,000 and $3 million respectively to the controversial independent group, "Swift Vets & POWs for Truth." McCain called "dishonest and dishonorable" the "Swift Vets" group's 2004 campaign ads that helped sink the presidential chances of Sen. John Kerry, D-Mass.

... McCain has been criticized by many liberals and pundits in recent weeks for agreeing to speak on May 13 at Liberty University, the school founded by Christian conservative Rev. Jerry Falwell, who McCain in 2000 labeled "an agent of intolerance." McCain told NBC's Tim Russert earlier this month that he no longer held that opinion.
"The, quote, 'Christian Right' has a major role to play in the Republican Party," McCain said. "One reason is because they're so active, and their followers are."

Interestingly the Wyly Brothers may have gotten the money to smear McCain from Texas taxpayers, with Bush's help. But that's a story for later...

John Dean, in the preface to his book Conservatives Without Conscience, writes,

How do people - particularly those who have never put their life on the line fot their country - engage in, or condone, attacks on Senator John McCain's life-defining experiences as a Vietnam POW or question Senator Ma Cleland's courage in building a new life after his loss of three limbs in Vietnam? What causes them to dispute Senator John Kerry's valor during voluntary combat duty in Vietnam or to contest Representative Jack Murtha's war record in Vietnam? ... These questions have clear answers. ... In fact, these people cannot be trusted to exercise the powers of government responsibly.
February 16, 2000

THE 2000 CAMPAIGN: THE OVERVIEW; In Hot Debate, Bush and McCain Collide Over Campaign's Tactics

In a barely controlled debate that revealed the depth of their mutual anger, Gov. George W. Bush and Senator John McCain lashed into each other's negative campaign tactics tonight, with Mr. McCain lecturing Mr. Bush that he ''should be ashamed'' that a surrogate had accused Mr. McCain of abandoning veterans.

Mr. Bush refused Mr. McCain's demand that he apologize, instead insisting that Mr. McCain stop impugning his integrity. In seething, indignant accusations, each man tried to portray himself as the victim of gutter politics, with Mr. McCain saying he had been called everything but a fascist.

''You're putting out stuff that is unbelievable, George, and it's got to stop,'' he said. ''And your ads have got to stop.''

The debate, the last before Saturday's crucial South Carolina primary, was by far the most freewheeling and intense of the Republican contest and reflected the sense of both camps that it could help determine the outcome of the vote. The arguments ranged across nearly every issue that has come up in the race, along with a few new ones.

With only Alan Keyes sitting between them, the two leading candidates argued forcefully over abortion, policy toward Russia, taxes, Social Security, and the don't-ask-don't-tell policy on gays in the military. On a day in which Mr. Bush issued a reformulated proposal to change the campaign finance proposal, the two disagreed sharply on which kinds of donations should be banned.

The field for the first time was reduced to just three candidates, allowing a series of far more direct confrontations than any previous debates. Mr. Keyes's often-hectoring interjections heightened the incendiary tone of the evening, particularly regarding Mr. Bush's campaign event at Bob Jones University, a center of Christian conservatism that does not allow interracial dating. While Mr. Bush looked skyward, Mr. Keyes unleashed a scathing attack on him for speaking there and not condemning its dating policy.

''Does leadership consist of going into Bob Jones University where serious questions, in fact, do exist about religious bigotry and racial bigotry?'' Mr. Keyes asked. ''Going in, taking the applause, risking nothing because you refuse to raise the issues? That's what G. W. Bush did.''

Mr. Bush retorted that he did not support the university's policy.

But the most personal exchanges came early in the 90-minute debate at a catering hall here, when the moderator, Larry King, asked about the conduct of the campaign. Governor Bush immediately accused Senator McCain of being first to break a promise not to run negative advertising.

''We shook hands, and unfortunately he ran an ad that equated me to Bill Clinton,'' Mr. Bush said, sounding exasperated. ''You can disagree on issues. We'll debate issues. But whatever you do, don't equate my integrity and trustworthiness to Bill Clinton.''

Mr. McCain, steely but furious, immediately responded by citing an event early this month in Sumter, S.C., in which J. Thomas Burch Jr., chairman of the National Vietnam and Gulf War Veterans Committee, complained that Mr. McCain had opposed measures dealing with Agent Orange and gulf war syndrome.

''I don't know if you can understand this, George, but that really hurts,'' Mr. McCain said. ''You should be ashamed. You should be ashamed.''

Mr. Keyes, who had been expected to spend the evening criticizing Mr. McCain, instead worked to appear above the fray and condemned both of his opponents, saying there were more important issues to discuss than campaign tactics. Mr. King also tried to change the subject, but Mr. McCain pressed on, demanding to tell the story of the negative telephone calls being made to South Carolina voters by the Bush campaign. Mr. Bush then pulled out a McCain campaign flier criticizing his tax cut plan, accusing Mr. McCain of continuing his attacks despite a new vow to stop.

''That is not by my campaign,'' Mr. McCain said.

''Well, it says paid for by John McCain,'' Mr. Bush said.

''That is not by my campaign,'' Mr. McCain said.

''McCain 2000,'' Mr. Bush said. ''John, well then somebody's putting stuff out.''

Mr. McCain explained after the debate that the flier was printed a few weeks ago, before his no-negative-ad pledge, and was apparently distributed by a campaign worker without his knowledge.

A significant portion of the evening involved foreign policy questions, a departure from previous debates. The candidates were asked what aspects of the nation's foreign policy they would change. Both Mr. Bush and Mr. Keyes criticized the American policy toward China.

Mr. McCain urged a particularly aggressive approach toward what he called rogue states.

''I'd institute a policy that I call rogue state rollback,'' he said. ''I would arm, train, equip, both from without and from within, forces that would eventually overthrow the governments and install free and democratically elected governments.''

Mr. Bush and Mr. McCain also tangled over when it was appropriate for the United States to intervene in foreign conflicts. Mr. Bush said he would authorize the use of armed forces when it is the ''nation's strategic interests.''

Mr. McCain told Mr. Bush his analysis ''wasn't that simple,'' saying there were times when a violation of moral principles justified the commitment of troops.

''We can never say that a nation driven by Judeo-Christian principles will only intervene where our interests are threatened, because we also have values,'' he said.

All three tried to make the most forceful case for their candidacy. Mr. Bush stressed his executive experience as governor of Texas, saying of his two opponents, ''These are good men. Don't get me wrong. But I've been there.'' Mr, McCain said he was the one to reconstitute the old Reagan coalition. Mr. Keyes scoffed at both men as not forceful enough, saying ''I question their ability to articulate on the moral issues of our time.''

Questioned by Mr. King, Mr. Bush said he would not describe Mr. McCain as a liberal and even characterized his opponent as conservative and as ''a fine man.'' He said he was simply more conservative than Mr. McCain on certain issues.

Mr. Bush and Mr. McCain also sparred on their competing tax cut plans. Mr. Bush has proposed a $483 billion, five-year tax cut. Mr. McCain has called for nearly $240 billion in tax cuts over the same period, with much of the federal surplus going to shore up Social Security.

Mr. McCain, raising questions about Mr. Bush's maturity, defended his emphasis on Social Security, saying ''It's not the Washington mentality. It's the grown-up mentality. It's the grown-up mentality that recognizes that we have obligations.''

Mr. Bush responded bitterly that it was a Republican philosophy that favored giving tax money back to the people.

''I don't trust Congress,'' he said. ''I trust people. And I want to give people their money back. This is a realistic plan that I'm going to get done. And John, you know, grown-up or non grown-up -- I know that's kind of a line you're trying to come across with, but it's weak -- either you trust the people or you trust government. And our Republican Party ought to stand for trusting the people to spend their own money.''

The two also clashed on the overhaul of the campaign finance law, on a day when Mr. Bush put forward his own plan. Without explicitly mentioning Mr. McCain's effort to ban unlimited, unregulated donations to political parties, Mr. Bush said the logical extension of such plans would allow the press to decide political victors.

Mr. King asked, ''If I gave you a million dollars, don't you have to take my phone call?''

Mr. Bush replied, ''Not necessarily.''

Mr. McCain jumped in, sardonically. ''Sure,'' he said. ''Ask any ex-senator, Larry, ask any ex-senator, they'll tell you.''

Mr. Bush and Mr, McCain also bickered over abortion, with Mr. McCain demanding to know why Mr. Bush did not want to include in the Republican platform's call for a constitutional ban on aboriton an exception in the case of rape, incest or the life of the mother.

Mr. Bush said the platform ''doesn't talk about what specifically should be in the constitutional amendment.''

Mr. McCain shot back, ''It doesn't have the exemptions in it and you know that very well.''


The 10 Dirtiest Political Races in U.S. History

Ads, slogans, and campaign themes that stand out for sheer venom

David Mark | November 2006

...2002 Meanwhile, in Georgia's Senate race, politicians learned the power of suggesting your opponent is indifferent to terrorism. In a widely criticized commercial, GOP challenger Saxby Chambliss denounced Democratic Sen. Max Cleland's vote against one proposed version of the new Department of Homeland Security. The spot opened with Osama bin Laden and Saddam Hussein glowering over a montage of military images. The ad faded to black, then launched into Chambliss' criticisms of Cleland, a quadriplegic veteran crippled during his tour of duty in Vietnam. The senator's supporters decried the ad for linking him with those international villains, but his opponent contended that the spot focused, fairly, on his votes in office. The people of Georgia agreed, booting Cleland from the Senate....


Remarks of Senator Barack Obama

The America We Love

as prepared for delivery

Monday, June 30th, 2008

Independence, Missouri

On a spring morning in April of 1775, a simple band of colonists – farmers and merchants, blacksmiths and printers, men and boys – left their homes and families in Lexington and Concord to take up arms against the tyranny of an Empire. The odds against them were long and the risks enormous – for even if they survived the battle, any ultimate failure would bring charges of treason, and death by hanging.

And yet they took that chance. They did so not on behalf of a particular tribe or lineage, but on behalf of a larger idea. The idea of liberty. The idea of God-given, inalienable rights. And with the first shot of that fateful day – a shot heard round the world – the American Revolution, and America's experiment with democracy, began.

Those men of Lexington and Concord were among our first patriots. And at the beginning of a week when we celebrate the birth of our nation, I think it is fitting to pause for a moment and reflect on the meaning of patriotism – theirs, and ours. We do so in part because we are in the midst of war – more than one and a half million of our finest young men and women have now fought in Iraq and Afghanistan; over 60,000 have been wounded, and over 4,600 have been laid to rest. The costs of war have been great, and the debate surrounding our mission in Iraq has been fierce. It is natural, in light of such sacrifice by so many, to think more deeply about the commitments that bind us to our nation, and to each other.

We reflect on these questions as well because we are in the midst of a presidential election, perhaps the most consequential in generations; a contest that will determine the course of this nation for years, perhaps decades, to come. Not only is it a debate about big issues – health care, jobs, energy, education, and retirement security – but it is also a debate about values. How do we keep ourselves safe and secure while preserving our liberties? How do we restore trust in a government that seems increasingly removed from its people and dominated by special interests? How do we ensure that in an increasingly global economy, the winners maintain allegiance to the less fortunate? And how do we resolve our differences at a time of increasing diversity?

Finally, it is worth considering the meaning of patriotism because the question of who is – or is not – a patriot all too often poisons our political debates, in ways that divide us rather than bringing us together. I have come to know this from my own experience on the campaign trail. Throughout my life, I have always taken my deep and abiding love for this country as a given. It was how I was raised; it is what propelled me into public service; it is why I am running for President. And yet, at certain times over the last sixteen months, I have found, for the first time, my patriotism challenged – at times as a result of my own carelessness, more often as a result of the desire by some to score political points and raise fears about who I am and what I stand for.

So let me say at this at outset of my remarks. I will never question the patriotism of others in this campaign. And I will not stand idly by when I hear others question mine.

My concerns here aren't simply personal, however. After all, throughout our history, men and women of far greater stature and significance than me have had their patriotism questioned in the midst of momentous debates. Thomas Jefferson was accused by the Federalists of selling out to the French. The anti-Federalists were just as convinced that John Adams was in cahoots with the British and intent on restoring monarchal rule. Likewise, even our wisest Presidents have sought to justify questionable policies on the basis of patriotism. Adams' Alien and Sedition Act, Lincoln's suspension of habeas corpus, Roosevelt's internment of Japanese Americans – all were defended as expressions of patriotism, and those who disagreed with their policies were sometimes labeled as unpatriotic.

In other words, the use of patriotism as a political sword or a political shield is as old as the Republic. Still, what is striking about today's patriotism debate is the degree to which it remains rooted in the culture wars of the 1960s – in arguments that go back forty years or more. In the early years of the civil rights movement and opposition to the Vietnam War, defenders of the status quo often accused anybody who questioned the wisdom of government policies of being unpatriotic. Meanwhile, some of those in the so-called counter-culture of the Sixties reacted not merely by criticizing particular government policies, but by attacking the symbols, and in extreme cases, the very idea, of America itself – by burning flags; by blaming America for all that was wrong with the world; and perhaps most tragically, by failing to honor those veterans coming home from Vietnam, something that remains a national shame to this day.

Most Americans never bought into these simplistic world-views – these caricatures of left and right. Most Americans understood that dissent does not make one unpatriotic, and that there is nothing smart or sophisticated about a cynical disregard for America's traditions and institutions. And yet the anger and turmoil of that period never entirely drained away. All too often our politics still seems trapped in these old, threadbare arguments – a fact most evident during our recent debates about the war in Iraq, when those who opposed administration policy were tagged by some as unpatriotic, and a general providing his best counsel on how to move forward in Iraq was accused of betrayal.

Given the enormous challenges that lie before us, we can no longer afford these sorts of divisions. None of us expect that arguments about patriotism will, or should, vanish entirely; after all, when we argue about patriotism, we are arguing about who we are as a country, and more importantly, who we should be. But surely we can agree that no party or political philosophy has a monopoly on patriotism. And surely we can arrive at a definition of patriotism that, however rough and imperfect, captures the best of America's common spirit.

What would such a definition look like? For me, as for most Americans, patriotism starts as a gut instinct, a loyalty and love for country rooted in my earliest memories. I'm not just talking about the recitations of the Pledge of Allegiance or the Thanksgiving pageants at school or the fireworks on the Fourth of July, as wonderful as those things may be. Rather, I'm referring to the way the American ideal wove its way throughout the lessons my family taught me as a child.

One of my earliest memories is of sitting on my grandfather's shoulders and watching the astronauts come to shore in Hawaii. I remember the cheers and small flags that people waved, and my grandfather explaining how we Americans could do anything we set our minds to do. That's my idea of America.

I remember listening to my grandmother telling stories about her work on a bomber assembly-line during World War II. I remember my grandfather handing me his dog-tags from his time in Patton's Army, and understanding that his defense of this country marked one of his greatest sources of pride. That's my idea of America.

I remember, when living for four years in Indonesia as a child, listening to my mother reading me the first lines of the Declaration of Independence – "We hold these truths to be self-evident, that all men are created equal. That they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty and the pursuit of Happiness." I remember her explaining how this declaration applied to every American, black and white and brown alike; how those words, and words of the United States Constitution, protected us from the injustices that we witnessed other people suffering during those years abroad. That's my idea of America.

As I got older, that gut instinct – that America is the greatest country on earth – would survive my growing awareness of our nation's imperfections: it's ongoing racial strife; the perversion of our political system laid bare during the Watergate hearings; the wrenching poverty of the Mississippi Delta and the hills of Appalachia. Not only because, in my mind, the joys of American life and culture, its vitality, its variety and its freedom, always outweighed its imperfections, but because I learned that what makes America great has never been its perfection but the belief that it can be made better. I came to understand that our revolution was waged for the sake of that belief – that we could be governed by laws, not men; that we could be equal in the eyes of those laws; that we could be free to say what we want and assemble with whomever we want and worship as we please; that we could have the right to pursue our individual dreams but the obligation to help our fellow citizens pursue theirs.

For a young man of mixed race, without firm anchor in any particular community, without even a father's steadying hand, it is this essential American idea – that we are not constrained by the accident of birth but can make of our lives what we will – that has defined my life, just as it has defined the life of so many other Americans.

That is why, for me, patriotism is always more than just loyalty to a place on a map or a certain kind of people. Instead, it is also loyalty to America's ideals – ideals for which anyone can sacrifice, or defend, or give their last full measure of devotion. I believe it is this loyalty that allows a country teeming with different races and ethnicities, religions and customs, to come together as one. It is the application of these ideals that separate us from Zimbabwe, where the opposition party and their supporters have been silently hunted, tortured or killed; or Burma, where tens of thousands continue to struggle for basic food and shelter in the wake of a monstrous storm because a military junta fears opening up the country to outsiders; or Iraq, where despite the heroic efforts of our military, and the courage of many ordinary Iraqis, even limited cooperation between various factions remains far too elusive.

I believe those who attack America's flaws without acknowledging the singular greatness of our ideals, and their proven capacity to inspire a better world, do not truly understand America.

Of course, precisely because America isn't perfect, precisely because our ideals constantly demand more from us, patriotism can never be defined as loyalty to any particular leader or government or policy. As Mark Twain, that greatest of American satirists and proud son of Missouri, once wrote, "Patriotism is supporting your country all the time, and your government when it deserves it." We may hope that our leaders and our government stand up for our ideals, and there are many times in our history when that's occurred. But when our laws, our leaders or our government are out of alignment with our ideals, then the dissent of ordinary Americans may prove to be one of the truest expression of patriotism.

The young preacher from Georgia, Martin Luther King, Jr., who led a movement to help America confront our tragic history of racial injustice and live up to the meaning of our creed – he was a patriot. The young soldier who first spoke about the prisoner abuse at Abu Ghraib – he is a patriot. Recognizing a wrong being committed in this country's name; insisting that we deliver on the promise of our Constitution – these are the acts of patriots, men and women who are defending that which is best in America. And we should never forget that – especially when we disagree with them; especially when they make us uncomfortable with their words.

Beyond a loyalty to America's ideals, beyond a willingness to dissent on behalf of those ideals, I also believe that patriotism must, if it is to mean anything, involve the willingness to sacrifice – to give up something we value on behalf of a larger cause. For those who have fought under the flag of this nation – for the young veterans I meet when I visit Walter Reed; for those like John McCain who have endured physical torment in service to our country – no further proof of such sacrifice is necessary. And let me also add that no one should ever devalue that service, especially for the sake of a political campaign, and that goes for supporters on both sides.

We must always express our profound gratitude for the service of our men and women in uniform. Period. Indeed, one of the good things to emerge from the current conflict in Iraq has been the widespread recognition that whether you support this war or oppose it, the sacrifice of our troops is always worthy of honor.

For the rest of us – for those of us not in uniform or without loved ones in the military – the call to sacrifice for the country's greater good remains an imperative of citizenship. Sadly, in recent years, in the midst of war on two fronts, this call to service never came. After 9/11, we were asked to shop. The wealthiest among us saw their tax obligations decline, even as the costs of war continued to mount. Rather than work together to reduce our dependence on foreign oil, and thereby lessen our vulnerability to a volatile region, our energy policy remained unchanged, and our oil dependence only grew.

In spite of this absence of leadership from Washington, I have seen a new generation of Americans begin to take up the call. I meet them everywhere I go, young people involved in the project of American renewal; not only those who have signed up to fight for our country in distant lands, but those who are fighting for a better America here at home, by teaching in underserved schools, or caring for the sick in understaffed hospitals, or promoting more sustainable energy policies in their local communities.

I believe one of the tasks of the next Administration is to ensure that this movement towards service grows and sustains itself in the years to come. We should expand AmeriCorps and grow the Peace Corps. We should encourage national service by making it part of the requirement for a new college assistance program, even as we strengthen the benefits for those whose sense of duty has already led them to serve in our military.

We must remember, though, that true patriotism cannot be forced or legislated with a mere set of government programs. Instead, it must reside in the hearts of our people, and cultivated in the heart of our culture, and nurtured in the hearts of our children.

As we begin our fourth century as a nation, it is easy to take the extraordinary nature of America for granted. But it is our responsibility as Americans and as parents to instill that history in our children, both at home and at school. The loss of quality civic education from so many of our classrooms has left too many young Americans without the most basic knowledge of who our forefathers are, or what they did, or the significance of the founding documents that bear their names. Too many children are ignorant of the sheer effort, the risks and sacrifices made by previous generations, to ensure that this country survived war and depression; through the great struggles for civil, and social, and worker's rights.

It is up to us, then, to teach them. It is up to us to teach them that even though we have faced great challenges and made our share of mistakes, we have always been able to come together and make this nation stronger, and more prosperous, and more united, and more just. It is up to us to teach them that America has been a force for good in the world, and that other nations and other people have looked to us as the last, best hope of Earth. It is up to us to teach them that it is good to give back to one's community; that it is honorable to serve in the military; that it is vital to participate in our democracy and make our voices heard.

And it is up to us to teach our children a lesson that those of us in politics too often forget: that patriotism involves not only defending this country against external threat, but also working constantly to make America a better place for future generations.

When we pile up mountains of debt for the next generation to absorb, or put off changes to our energy policies, knowing full well the potential consequences of inaction, we are placing our short-term interests ahead of the nation's long-term well-being. When we fail to educate effectively millions of our children so that they might compete in a global economy, or we fail to invest in the basic scientific research that has driven innovation in this country, we risk leaving behind an America that has fallen in the ranks of the world. Just as patriotism involves each of us making a commitment to this nation that extends beyond our own immediate self-interest, so must that commitment extends beyond our own time here on earth.

Our greatest leaders have always understood this. They've defined patriotism with an eye toward posterity. George Washington is rightly revered for his leadership of the Continental Army, but one of his greatest acts of patriotism was his insistence on stepping down after two terms, thereby setting a pattern for those that would follow, reminding future presidents that this is a government of and by and for the people.

Abraham Lincoln did not simply win a war or hold the Union together. In his unwillingness to demonize those against whom he fought; in his refusal to succumb to either the hatred or self-righteousness that war can unleash; in his ultimate insistence that in the aftermath of war the nation would no longer remain half slave and half free; and his trust in the better angels of our nature – he displayed the wisdom and courage that sets a standard for patriotism.

And it was the most famous son of Independence, Harry S Truman, who sat in the White House during his final days in office and said in his Farewell Address: "When Franklin Roosevelt died, I felt there must be a million men better qualified than I, to take up the Presidential task…But through all of it, through all the years I have worked here in this room, I have been well aware than I did not really work alone – that you were working with me. No President could ever hope to lead our country, or to sustain the burdens of this office, save the people helped with their support."

In the end, it may be this quality that best describes patriotism in my mind – not just a love of America in the abstract, but a very particular love for, and faith in, the American people. That is why our heart swells with pride at the sight of our flag; why we shed a tear as the lonely notes of Taps sound. For we know that the greatness of this country – its victories in war, its enormous wealth, its scientific and cultural achievements – all result from the energy and imagination of the American people; their toil, drive, struggle, restlessness, humor and quiet heroism.

That is the liberty we defend – the liberty of each of us to pursue our own dreams. That is the equality we seek – not an equality of results, but the chance of every single one of us to make it if we try. That is the community we strive to build – one in which we trust in this sometimes messy democracy of ours, one in which we continue to insist that there is nothing we cannot do when we put our mind to it, one in which we see ourselves as part of a larger story, our own fates wrapped up in the fates of those who share allegiance to America's happy and singular creed.

Thank you, God Bless you, and may God Bless the United States of America.


12.45pm BST

Oil marches towards $150 a barrel

The price of oil continued its seemingly relentless march towards $150 a barrel today, driven by the simmering tensions between Iran and Israel.

The cost of a barrel of US crude hit $143.67 this morning, its highest-ever level. London Brent crude also reached a new peak of $143.81 a barrel. Both have more than doubled in the last twelve months, helping to fuel inflation and spark protests worldwide.

Traders said there are worries that Middle East oil supplies could be disrupted by the growing row between Iran and Israel, and speculation that military action could break out.

On Saturday the commander of Iran's Islamic Revolution Guards ratcheted up the tension by threatening to impose controls on shipping in the Gulf – through which 40% of the world's oil travels – if Israel launched an attack.

Major general Mohammad Ali Jafar also pointed out that Israel was "completely within the range" of Iran's missiles.

The comments were made after the New York Times reported that US military think Israel rehearsed a potential bombing attack on Iran's nuclear sites earlier this month.

A drop in the strength of the dollar also pushed up oil, which is quoted in the US currency, Ladbrokes last week stopped taking bets on US crude reaching $150 a barrel this year, after the head of Opec suggested that it could soon hit $170 a barrel. This month's summit in Saudi Arabia to discuss the oil crisis also failed to push the price down.

The rising oil price has meant a sharp jump in petrol prices, as well as goods such as food that are transported significant distances. Today French lorry drivers began demonstrating for government help, following similar protests earlier this month in Spain and the UK.

This article was first published on guardian.co.uk on Monday June 30 2008. It was last updated at 12:41 on June 30 2008.

How Much of the Cost of Oil is Built Into The Declining Value of Your Currency?

Disorderly Dollar Drop Can't Be Ruled Out, BIS Says (Update1)

Figure 1: Broad Trade Weighted Value of the Dollar, from January - March 2008. Source: Federal Reserve Board via FRED II, accessed March 17, 2008.

By Kim-Mai Cutler

June 30 (Bloomberg) -- A disorderly decline in the dollar remains a possibility as losses on U.S. assets pile up and the current-account deficit triggers ``a sudden rush for the exits,'' the Bank for International Settlements said.

A plunge in the currency may happen even after its ``remarkably orderly'' 14 percent slide against the euro in the past year, the Basel, Switzerland-based BIS said in an annual report today.

``Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency,'' the BIS said. ``While unlikely, indeed highly improbable for public-sector investors, a sudden rush for the exits cannot be ruled out completely.''

Officials from the Group of Seven nations said after a meeting in Tokyo on Feb. 9 that ``excess volatility and disorderly movements in exchange rates are undesirable,'' signaling policy makers may intervene to prop up the U.S. currency. U.S. Treasury Secretary Henry Paulson said in a radio interview in Moscow today ``a strong dollar is a good thing.''

Implied volatility on options for the dollar was at 10.3 percent today, according to a JPMorgan Chase & Co. index. It was 14.5 percent on March 17, the same level at which the G-7 stepped into the market in 1995 to influence prices.

Widening Deficit

The U.S. current-account deficit, the broadest measure of trade in goods, services and investment income, widened in the first quarter to $176.4 billion, the Commerce Department said on June 17. The U.S. needs to attract $1.9 billion a day from overseas to fund the gap. Foreign buying of U.S. assets rose in April to an 11-month high as total holdings of equities, notes and bonds increased by a net $115.1 billion, the Treasury Department said June 16.

The Dollar Index, which measures the currency against six major counterparts, declined 5.7 percent this year. The U.S. currency fell to an all-time low against the euro on April 22, when it reached $1.6019. Against the yen, it dropped to a 12- year low of 95.76 on March 17.

The declines have raised speculation that economies with fixed-currency systems will end their pegs and that central banks will reallocate foreign reserves away from the dollar, the BIS said. The U.S. currency made up about 64 percent of total reserves in 2007, a figure unchanged from the previous year, according to the International Monetary Fund.

Yen to Strengthen

The yen may also strengthen this year, raising deflation risks for the Japanese economy, which ``remains a significant and worrisome outlier,'' the BIS said.

The Japanese currency has appreciated 5.6 percent versus the dollar this year. It has weakened 2.4 percent against the euro.

``With the effective value of the yen close to a 30-year low, a large current-account surplus and massive exchange-rate reserves, the yen could eventually rise further,'' the BIS said. ``In this case, against a backdrop of sagging trade and continuing sluggish growth, a return to deflation could by no means be ruled out.''

The Japanese currency is forecast to rise to 100 per dollar and 148 against the euro within a year, according to the median of analysts' estimates compiled by Bloomberg. The world's second-largest economy shrank at an annual 0.4 percent pace in the second quarter, a separate Bloomberg survey of 17 economists showed.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Last Updated: June 30, 2008 09:30 EDT

Is it a currency war?
(The DAWN is "Pakistan's most widely circulated English language newspaper.")
By Zeenia Satti

THE UN Security Council’s March 3 sanctions against Iran not only present a diplomatic victory for President Bush but also a major success for Washington in the first phase of its currency war with Tehran. The war began with the commencement of Iran’s oil bourse in mid-February.

Widely known as the Kish bourse, it is intended to bypass London’s IPE and New York’s Nymex, both of which are effectively controlled by Washington.

The Kish bourse is intended to eventually sell crude oil to the international market in euros. By opening its own oil bourse, Iran became the first Opec insider to attempt the further weakening of an already ailing greenback. If joined by other Opec and Caspian producers, it could serve a death blow to the American economy.

The dollar’s predominance as the world’s hegemonic currency has its genesis in the 1972/73 US-Saudi agreement to price oil exclusively in dollars in return for US protection to the House of Saud against external aggression or domestic overthrow. This arrangement led to Opec transacting oil exclusively in dollars ever since.

The ever-increasing use of oil in the world at a rising price led to an ever-rising demand for the dollar as the world’s reserved currency, enabling America to export a cheaply produced good with handsome dividends. Given the relative decline of American industrial output over time, the dollar’s hegemony has become vital for its economy. Once it was established, the Opec kingdoms never challenged the dollar’s hegemony. They put a high value on US protection which guarantees their political survival and their territorial integrity. The kingdoms’ borders are arbitrarily drawn to meet twentieth-century politico-economic needs rather than delineate ethnic patterns. The parameters of Washington’s protection include maintaining the regional status quo plus monitoring the kingdoms’ domestic fronts for rebellion. Because this deal ensures mutual survival, its tenacity remained impervious to secondary political causes.

Paradoxically, the maintenance of the status quo has been disrupted by the US itself. In 2000, Saddam Hussein demanded that Iraqi oil sale in the UN-administered Oil For Food programme be transacted in euros. The UN conceded and Saddam further declared his intention to open Iraq’s own oil bourse. Washington saw this development as dangerous and sacked Saddam by invading Iraq in 2003.Thereafter, Iraq’s oil sales reverted to the dollar. However, ‘peak oil’ concerns led to Washington’s occupation of Iraq. With continued occupation, the show of armed commitment to the greenback became counterproductive and led to the beginning of the petering out of the kingdoms’ commitment to the dollar. Instead of guarantor, Washington now appears as a threat to the status quo. Anti-US sentiment in Arab societies frightens the monarchs into believing that if Washington invades more Middle Eastern countries, this sentiment would deepen and eventually target their households.

Hence a rising notion within the royal families that if stripped of its dollar hegemony, the US could be deprived of unlimited credit for waging further wars in the Middle East. In the third Opec summit meeting in Riyadh in November 2007, the issue of the dollar’s depreciation, though not incorporated in the final declaration, was assigned to the kingdoms’ respective finance ministers to study.

Given the de facto taboo on this subject, this is a significant development that may have prompted Bush to make a journey to the Saudi kingdom later in January 2008.

Though Iraq, Iran and Petrocaribe’s (Venezuela’s) switch from the dollar is due to political vengeance, it makes economic sense. If a bourse trades oil in euros, other countries can build up their reserves of an ascendant euro instead of having to replenish the rapidly depreciating dollar. However, two interrelated developments threaten Iran’s oil bourse. One is Ahmadinejad’s rise to power and his belligerence towards Israel, a UN member state; the other is Washington’s corresponding success in building up an international consensus against Iran.

The industrial group reorganised the sanctions regime in 1996 at the behest of the US under the Wassenaar Arrangement. Functioning parallel to other treaties monitoring proliferation, Wassenaar shifted the target of technology-transfer curbs from Communism to individual states who “exhibit dangerous behaviour”. At the time of signing, Washington tried to designate the Middle East as a “destabilising region”. Other members refused as they did not want regional bias inducted into the Wassenaar regime. Their concession confines to granting Washington endorsement for its designation of Iran, Iraq, Libya and North Korea as “rogue states”.

Given the shift in the sanctions target, Iran under Khatami realised that the most serious danger it faced was American ability to deny it access to arms, technology and the hard currency necessary to procure technology. Consequently, Khatami launched a conciliatory policy from 1997-2005 called the “Dialogue of Civilisations”, the success of which greatly complicated Washington’s manoeuvres against Iran.

In an interview with CNN in January 1998, Khatami apologised to the Americans for the hurt caused by the siege of their embassy during the 1979 revolution. This softened public opinion about Iran and led to a series of athletic exchanges between Iran and the US. Khatami’s gains in the Middle East multiplied with Tehran’s hosting of the 1997 OIC summit, increased ministerial exchanges in the Gulf, and a handshake with the Israeli prime minister at the Pope’s funeral in 2005. The US was forced by its European allies to repeal the imposition of secondary sanctions over European investment in Iran’s energy sector.

Moscow abandoned the Gore-Chernomyrdin agreement between Russia and the US that limits the sale of Russian conventional arms to Iran. In 2004, Iran reached an agreement with Britain, France and Germany on nuclear cooperation for peaceful purposes. Khatami’s principles remained firm. Alongside appeasement, Khatami test-fired Tehran’s first indigenous missile that reaches Tel Aviv, inaugurated Iran’s own indigenous arsenal and announced the plan to open Iran’s oil bourse. Bereft of its anti-Iran clout, Washington remained largely ineffective in opposing these developments.

Ahmadinejad’s “dangerous behaviour” nullified Khatami’s gains. Since Dec 23, 2006, Ahmadinejad has failed to comply with successive UNSC resolutions against Iran. Correspondingly, Washington has succeeded in gaining multilateral cooperation in successively tougher sanctions against Iran that are “targeted financial measures” aimed at incapacitating key sectors of Iran’s economy. These include the amputation of Iran from the global and the Gulf’s financial infrastructure and enforcing the withdrawal of foreign investment in the development of Iran’s oil and gas sector.

UNSCR 1803 of March 3 will severely hamper the functioning of the Kish bourse. However, should the bourse malfunction, it will be deemed to have been due to sanctions instead of market forces. This means the Kish bourse’s malfunction will not deter plausible moves in this direction by other oil producers.

The writer is an energy consultant and analyst of energy geopolitics based in Washington, DC.

zeenia.satti@yahoo.com

Opinion: Bin Laden to blame for U.S. economic woes?
Attacks of Sept. 11 triggered a series of events that have sapped government coffers and non-military spending

By Bernd Debusmann

(Reuters)—Past performance is no guarantee of future behavior but it can’t be long before Osama bin Laden issues a message crowing about the parlous state of the U.S. economy and hailing it as a success for al Qaeda.

Last September, on the sixth anniversary of the attacks on the New York Twin Towers and the Pentagon, a bin Laden video included a line on “the reeling of many of you under the burden of interest-related debts, insane taxes and real estate mortgages.” A few days before the 2004 presidential election, his message said al Qaeda was on track with its oft-declared policy of “bleeding America to the point of bankruptcy.”

At the time, a gallon of gasoline hovered around $2, the housing bubble was still inflating, and the word recession was rarely uttered. Now, the price of gasoline has soared past $4, hundreds of thousands of Americans have lost their homes, the Labor Department has just announced the U.S. economy lost jobs for the fifth straight month. Plenty of material for an al Qaeda speechwriter.

How much of the trouble is due to the chain of events bin Laden unleashed with the September 11 attacks? Those strikes prompted the war in Afghanistan, meant to wipe out al Qaeda, capture bin Laden and bring him to justice. That was followed by the war on Iraq and a host of security programs under the umbrella of what the Bush administration calls the Global War on Terror.

Barack Obama, the presumptive Democratic nominee for next November’s presidential elections, has accused the Bush administration of having neglected the hunt for bin Laden. John McCain, the presumptive Republican nominee, says in campaign speeches that he knows how to capture bin Laden and will follow him “to the gates of hell.”

Better late than never. Bin Laden and his top commanders slipped away from their U.S. special forces pursuers in Afghanistan at the end of 2001. Washington then began focusing not on the mastermind of September 11 but on Iraq’s Saddam Hussein, who had nothing to do with it. The 2003 U.S. invasion of Iraq convinced millions of Muslims that al Qaeda was right in portraying the U.S. as anti-Islam and intent on seizing the Middle East’s oil riches.

Bin Laden’s assertion that the Iraq war is bleeding the American economy is now in synch with most Americans. A recent New York Times/CBS showed that 67% believe the war in Iraq has contributed “a lot” to America’s economic problems.

In the words of Joseph Stiglitz, the Nobel prize-winning economist: “The Iraq adventure has seriously weakened the U.S. economy...You can’t spend $3 trillion on a failed war and not feel the pain at home.”

Harvard University budget expert Linda Bilmes says the war is diverting government expenditures from schools, roads, research and other areas that would have stimulated the economy in the short run and accelerated growth in the long run.

There are other factors for the downturn, including weak regulation of complex financial instruments combined with loose lending standards for mortgages. But perception is reality.

As the 20th anniversary of al Qaeda’s founding approaches, next August, America’s leading terrorism experts are engaged in a public dispute over how best to fight terrorists, and who is most dangerous— “Qaeda Central” or a new generation of potential terrorists.

On one side of the argument is Bruce Hoffman, a Georgetown University professor who says al Qaeda has recovered from a series of blows and is back plotting large-scale international operations from safe havens along the Afghan-Pakistan border.

On the other side is Marc Sageman, a forensic psychiatrist and former CIA officer who ran operations in Pakistan. He says al Qaeda is a fading force, still dangerous but yesterday’s men. In a book entitled Leaderless Jihad, he says the biggest threat now comes from “self-recruited wannabees” who find each other on the Internet.

“They are young people seeking thrills and a sense of belonging and significance in their lives. And their lack of structure and organizing principles makes them even more terrifying and volatile than their terrorist forebears.”

Examples of leaderless jihadists, inspired but not directed by al Qaeda: The Dutch Hofstad Network (one of whose members murdered the film maker Theo van Gogh) and the people who carried out the 2004 Madrid train bombings.

One of the biggest problems in countering the leaderless jihad is the vast pool of Muslims who detest the United States. How big is that pool? Earlier this year, the Gallup organization published the results of what it described as the largest-ever survey of Muslims. It found that the vast majority of the world’s 1.3 billion Muslims condemn violence against civilians.

But 7% hate the United States so deeply that they consider the September 11 attacks “completely justified.” Seven% translates into 91 million people. According to Mr. Sageman, “withdrawal from Iraq is a necessary condition for diminishing the sense of moral outrage that Muslims feel.”

It would also be good for the economy.

(Bernd Debusmann is a columnist at Reuters.)



Sunday, June 29, 2008

Oil hits record near $143 Friday June 27 2008

Wishful thinking: Oil prices will drop if speculation is limited

By Paul Krugman

Congress has always had a soft spot for "experts" who tell members what they want to hear, whether it's supply-side economists declaring that tax cuts increase revenue or climate-change skeptics insisting that global warming is a myth.

Right now, the welcome mat is out for analysts who claim that out-of-control speculators are responsible for $4-a-gallon gas.

Back in May, Michael Masters, a hedge fund manager, made a big splash when he told a Senate committee that speculation is the main cause of rising prices for oil and other raw materials. He presented charts showing the growth of the oil futures market, in which investors buy and sell promises to deliver oil at a later date, and claimed that "the increase in demand from index speculators" - his term for institutional investors who buy commodity futures - "is almost equal to the increase in demand from China."

Many economists scoffed: Masters was making the bizarre claim that betting on a higher price of oil - for that is what it means to buy a futures contract - is equivalent to actually burning the stuff.

But members of Congress liked what they heard, and since that testimony much of Capitol Hill has jumped on the blame-the-speculators bandwagon.

Somewhat surprisingly, Republicans have been at least as willing as Democrats to denounce evil speculators. But it turns out that conservative faith in free markets somehow evaporates when it comes to oil. For example, National Review has been publishing articles blaming speculators for high oil prices for years, ever since the price passed $50 a barrel.

And it was John McCain, not Barack Obama, who recently said this: "While a few reckless speculators are counting their paper profits, most Americans are coming up on the short end - using more and more of their hard-earned paychecks to buy gas."

Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don't have to adapt to a world of expensive gas.

Indeed, this past Monday Masters assured a House subcommittee that a return to the days of cheap oil is more or less there for the asking. If Congress passed legislation restricting speculation, he said, gasoline prices would fall almost 50 percent in a matter of weeks.

OK, let's talk about the reality.

Is speculation playing a role in high oil prices? It's not out of the question. Economists were right to scoff at Masters - buying a futures contract doesn't directly reduce the supply of oil to consumers - but under some circumstances, speculation in the oil futures market can indirectly raise prices, encouraging producers and other players to hoard oil rather than making it available for use.

Whether that's happening now is a subject of highly technical dispute. (Readers who want to wonk themselves out can go to my blog, krugman.blogs.nytimes.com, and follow the links.) Suffice it to say that some economists, myself included, make much of the fact that the usual telltale signs of a speculative price boom are missing. But other economists argue, in effect, that absence of evidence isn't solid evidence of absence.

What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore.

You see, iron ore isn't traded on a global exchange; its price is set in direct deals between producers and consumers. So there's no easy way to speculate on ore prices. Yet the price of iron ore, like that of oil, has surged over the past year. In particular, the price that Chinese steel makers pay to Australian mines has just jumped 96 percent.

This suggests that growing demand from emerging economies, not speculation, is the real story behind rising prices of raw materials, oil included.

In any case, one thing is clear: The hyperventilation over oil-market speculation is distracting us from the real issues.

Regulating futures markets more tightly isn't a bad idea, but it won't bring back the days of cheap oil. Nothing will. Oil prices will fluctuate in the coming years - I wouldn't be surprised if they slip for a while as consumers drive less, switch to more fuel-efficient cars, and so on - but the long-term trend is surely up.

Most of the adjustment to higher oil prices will take place through private initiative, but the government can help the private sector in a variety of ways, such as helping develop alternative-energy technologies and new methods of conservation and expanding the availability of public transit.

But we won't have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.


PAUL KRUGMAN is a New York Times columnist.

Congress rushes to fill oil speculation loophole

Speculation can add $70 to the price of a barrel of oil, critics charge.

Call it Enron, the sequel.

In a scramble to find a fix for energy prices, Congress has tried (and failed) to strip tax breaks from Big Oil, to open protected sites for exploration and drilling, and to jump-start a new era in nuclear power.

Now, Capitol Hill is zeroing in on speculators and the legal loopholes that some lawmakers say are adding as much as $70 to the price of a barrel of oil.

"Energy speculation has become a fine growth industry and it is time for the government to intervene," said House Energy and Commerce Committee Chairman John Dingell (D) of Michigan, at hearing on Monday.

Fixes in the works on Capitol Hill range from new constraints on speculators – including a 50 percent margin requirement on financial speculators, full disclosure of all trading by investment banks in all markets, and prohibiting investment banks from holding energy assets – to more funding and regulatory mandates for the Commodity Futures Trading Commission.

Financial speculators – that is, hedge funds, investment banks, and other traders who do not take physical possession of the commodities – are surging into commodities markets. On that point, there is no dispute.

But experts differ widely on the impact these new players have on prices. Treasury Secretary Henry Paulson and many financial industry analysts say prices are still set by the fundamentals of supply and demand.

Many lawmakers, along with oil industry spokesmen, the Saudi oil minister, and the International Monetary Fund, say excessive speculation in the futures market is also a factor in the run-up of prices.

Since September 2003, traders holding crude-oil futures contracts jumped from 714 contracts traded to more than 3 million contracts traded in May 2008, says Rep. Bart Stupak (D) of Michigan, who chairs the House Energy and Commerce Subcommittee on Oversight and Investigation. His panel held its second hearing on energy speculation Monday.

Speculators now account for 71 percent of the oil futures market, up from 29 percent in 2000, he says, citing data from the Commodity Futures Trading Commission (CFTC). Overall, commodity index speculation has jumped from $13 billion in 2003 to some $260 billion today.

"Given this imbalance, you have to wonder if the regulator [CFTC] is missing the forest for the trees," Representative Stupak said Monday.

Many lawmakers insist that such a surge cannot help but contribute to the surge in oil prices.

"The [commodities] market is broken. It doesn't work. It is full of speculators and what they're interested in is to drive up the price. They don't give a rip about the damage to the economy," says Sen. Byron Dorgan (D) of North Dakota, who is chairing another hearing on speculation.

Many of these trades are exempt from CFTC oversight, and Congress is racing to pass laws to change that: The Enron loophole, the London loophole, the swaps loophole, among others, are on the blocks in bipartisan bills pending in both the House and Senate. (The Enron loophole to a 2000 law allows oil futures to be traded outside the jurisdiction of the CFTC.)

As recently as December, CFTC acting chairman Walter Lukken told Congress that "excessive speculation" was not a problem. But in response to mounting criticism, the CFTC this month launched a national crude-oil investigation to consider recent evidence on speculation. It also announced an agreement with the UK Financial Services Authority to expand the data received from institutions trading crude-oil products across borders – a bid to close the so-called London loophole.

"We've been slow to react and we're beginning to do what we need to do," said CFTC commissioner Bart Chilton in a phone interview.

Despite the surge in investment in commodities markets, the CFTC has only 448 staff, compared with 3,700 for the Securities and Exchange Commission.

"We are down 175 staff members from a high in 1992, despite a rising tide of hedge fund and pension fund investment in the commodities market," says Mr. Chilton.

But there is not yet a consensus within the CFTC that further steps to rein in speculation are needed.

"There's no evidence of speculative influence. Speculators are not contributing to the demand for physical oil as they almost always roll positions prior to delivery," says Craig Pirrong, a professor of finance at the University of Houston and a member of the CFTC energy markets advisory committee.

But at Monday's hearing, Michael Masters, portfolio manager of the hedge fund Masters Capital Management said: "This is an acute crisis. The time for studies and examinations is past."

A key witness in recent congressional hearings, Mr. Masters said in an interview that "even though speculators are not hoarding actual commodities, they have the effect of driving up the price for consumers around the world because of the linkage between the commodities market and the spot market."

"They have the same effect on price as if they were buying real physical commodities," he said.

US senator seeks curb on oil speculation

By Joanna Chung in New York

Published: June 24 2008 22:04 | Last updated: June 24 2008 22:42

Political pressure to combat speculation in oil markets increased on Tuesday as a senior US senator called for restrictions on pension funds and other big institutional investors investing in energy and farming commodities.

The proposal is one of three put forward yesterday by Joseph Lieberman, a Democratic-turned-independent senator from Connecticut. It is the latest in a series of calls for tougher regulation, amid growing US worries over food and fuel costs.

Politicians fear that traders might be exploiting the more lightly regulated London oil and oil-futures markets – via the “London loophole” – to trade in a way that might be artificially boosting prices. An act to close that loophole was proposed by five US senators last week.

Many politicians attach much of the blame to financial investors, including pension funds, which have poured billions of dollars into the futures market in recent years, largely through commodity indices. The two leading presidential candidates, Barack Obama and John McCain, have also weighed in, pledging to propose remedies to rein in market speculation.

On Tuesday, Mr Lieberman, a close ally of Mr McCain, said he was “persuaded” that speculators were a “significant contributing factor to the economic distress now being felt by American consumers every time they stand in the grocery store checkout line or pay for a fill-up at the gas pump”.

Amid growing political pressure, the Commodity Futures Trading Commission, the chief futures regulator, imposed limits last week on the size of speculative positions that could be taken out on London’s ICE Futures Europe exchange. About 15 per cent of futures trading on the benchmark West Texas Intermediate oil contract takes place there.

The limits would bring oversight of traders’ behaviour on the London ex-change in line with oversight on domestic markets.

Yet that is unlikely to stop legislators who are considering proposals to extend US regulation over the “London loophole” or to close it.

Despite seven congressional hearings into “excessive speculation” in the past three months, there is little agreement on whether speculation is causing food and energy price inflation. The commodities regulator has repeatedly said that fundamental supply and demand factors are mainly behind the recent price movements – though it is stepping up its focus on the potential impact of speculators and commodity index traders.

Some observers say lawmakers have not explained how speculators or pension funds are boosting commodity prices or why the price of raw materials such as iron ore, rice or coal – in which speculators have limited access – are also booming.

On Tuesday, William Quinn, chairman of the Committee on the Investment of Employee Benefit Assets, which represents 110 of the largest US pension funds, told senators that pension funds were long term investors – not speculators.

“We are deeply concerned about the prospect of any legislation that would bar pension plans from investing in certain types of assets,” he said.



PERHAPS 60% OF TODAY'S OIL PRICE IS PURE SPECULATION


By F. William Engdahl, 2 May 2008


The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil―West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it's also a key benchmark for US production.


’The tail that wags the dog’

All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”

With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.


Enron has the last laugh…

As that US Senate report noted:

Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”

The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”

In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (“open interest”) at the end of each day.”

Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”

Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.


The CFTC opens the door

Then, in January 2006, ICE Futures in London began trading a futures contract for West Texas Intermediate (WTI) crude oil, a type of crude oil that is produced and delivered in the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.

Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline, and heating oil futures contracts, the CFTC has until today refused to assert any jurisdiction over the trading of these contracts.

Persons within the United States seeking to trade key US energy commodities – US crude oil, gasoline, and heating oil futures – are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.

Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.

A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.

In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.

By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation. As the Senate report noted, “The CFTC's ability to detect and deter energy price manipulation is suffering from critical information gaps, because traders on OTC electronic exchanges and the London ICE Futures are currently exempt from CFTC reporting requirements. Large trader reporting is also essential to analyze the effect of speculation on energy prices.”

The report added, “ICE's filings with the Securities and Exchange Commission and other evidence indicate that its over-the-counter electronic exchange performs a price discovery function -- and thereby affects US energy prices -- in the cash market for the energy commodities traded on that exchange.”


Hedge Funds and Banks driving oil prices

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.



Perhaps 60% of oil prices today pure speculation

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing,

resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.

Over the past couple of years global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”


Dollar and oil link

A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar “short” and oil “long.”

For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact.

In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.

Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.

The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs.

The Speculation Explanation: Framing the Energy Crisis

By Matthew S. Miller, AlterNet
Posted on June 28, 2008

"There is nothing in that equation that says oil should cost what it costs today. Nothing! With one exception -- speculation." -- Mike Norman, Fox News Central
"A major contributor (to high oil prices) is the rise in speculation." -- Sen. Carl Levin, D-Mich., to CNNMoney
"Perhaps 60 percent of today's oil price is pure speculation." -- F. William Engdahl, Global Research

The $11 spike in the price of crude oil on Friday, June 6, pasted a great big exclamation point on the sentence, "Something is wrong with oil prices" banging around in the worried minds of America's happy motoring hoi polloi. With the national average for a gallon of liquid mobility hovering around four bucks, fear, now the only motive for action among the populace of fortress America, inevitably initiated some reflection among them. Such instinctive fear-inspired attention developing around the plug-in of the matrix must be deflected, and so it was: Enter the speculation explanation.

The speculation explanation blurs the issues involved in our present energy crisis by suggesting the wrong semantic frame to truthfully explain high oil prices and the likely consequences of depletion. Oil futures speculation is only tangentially relevant to an honest discussion of the price of oil. In fact, it is harmful because it undermines and replaces a reality-based appraisal of the problem. This meme arose simultaneously from a variety of sources by institutional necessity from within the propaganda apparatus to serve the interests of the military-industrial-congressional-cultural complex. Those interests are "business as usual" at all costs. The story will sound familiar.

The speculation explanation filtered through the media system like a virus; the cable TV culture conduit showed footage of it being uttered by corporate shills, politicians, kings and think tank pundiots until it became common knowledge. It was repeated like the pledge of allegiance, everyone marching in lockstep, in exactly the fashion predicted in the propaganda model of media. It was the version of events created for public consumption.

Pairing the words oil and speculation ubiquitously and uncritically, the usual cable news talking heads faithfully disseminated the meme to the masses. The cacophony reached new heights in congressional hearings last week. Politicians from the auto state opined repeatedly about speculation for an obvious reason -- the inverse relation between high gas prices and Michigan's economic survival. The notion of speculation as the principle cause of recent price spikes also found a defender from among those who also believe that oil comes from a magic oil fairy that lives at the center of the Earth and abiotically refills oil reservoirs as they deplete (making the 60 percent speculation quotient easier to estimate presumably?). So what is the average American to make of this?

Economists employ the term speculation to refer to a specific kind of market activity. Markets generate wealth in four ways: profit from direct financing of business activity or investment; profit through risk minimization or hedging; profit from price differences between two distinct markets, or arbitrage; and profit through price differences in a single market, known as agiotage, or speculation. The speculator tries to buy low and sell high, thereby profiting from the market uncertainty about the future supply. Speculation and market manipulation are two different things. The speculator is simply betting the price will go up.

Oil is a fungible commodity in a global market. Used to be that speculation was never a problem for the oil market, since world supply steadily grew year on year, and if the price ever got too high "somebody" would just turn on the pump and flood the market with cheap crude. Call it supply-side price controls. In the early days of the 20th century, that somebody was Uncle Sam and his nephew Standard Oil.

Since the '70s, the world's swing producer has been the kingdom of Saudi Arabia. This macro-manipulation of the price of oil, neo-liberal reservations aside, never garnered a congressional or popular objection, as long as it was the United States or our ally in the desert doing the manipulation in order to keep things humming right along for the disaster capitalists.

While the Saudis announced plans last week to increase their production by a quarter of a million barrels, they -- or even a unified OPEC -- cannot lower price by increasing supply. The proposed increase represents a mere quarter of a percent of daily world production, and it has no chance of making even a minor dent in price. Considerable doubt remains about whether such an increase can be sustained for long. The Saudis cannot increase supply to match demand in any event, so that's it for supply-side price controls. It should come as no surprise that even Abdullah joined the speculation sing-along lest he witness his vast dollar-denominated assets devalue further.

According to many prominent geologists, the planet reached or will reach very soon its all-time petroleum production peak. No amount of investment or innovation can alter that fundamental geologic fact. Because of this, according to legendary oilman T. Boone Pickens, only demand destruction can lower prices now.

The argument for speculation as the cause of the price run-up is both right and wrong. It is true that investors, the big banks and funds especially, are trying to make some money by buying up commodities, especially oil, after losing their shirts buying bad mortgage paper. Their activities can be accurately characterized as speculation in the economist's sense of the term. These commodities futures purchases also function as a hedge against the weakness of the dollar.

Criminal only in the sense that all capitalism is criminal, such speculation remains an integral part of a free market system. Consumers remain stuck between the Scylla of speculation-induced price shocks and the Charybdis of shrinking retirement portfolios directed by money managers frantically trying to offset massive write-downs with profits from commodities speculation. Bad news any way you slice it.

In an economy where Bubbles Greenspan blew hot air into tech stocks and the housing market in rapid succession, it is easy to view any steep rise in prices as the result of a speculative bubble. The real long-term value in the underlying market remains the question. There is no oil bubble, only a widening gulf between the amount of oil available and the amount of oil we want to use. Since world supply has remained flat since 2005, prices have risen and consumers in poorer nations simply quit buying, creating the facade of equilibrium and postponing inevitable shortages in the industrialized nations. According to energy analysts Matt Simmons and Dr. Robert Hirsch, oil at $140 remains significantly underpriced.

We in the United States have come to expect low energy prices as a birthright; however, because our economy and infrastructure cannot function without massive amounts of hydrocarbon energy, we will pay whatever it costs for as long as possible to keep the lights on and the trucks moving. Given rapidly growing demand from Chindia, the only direction for the price in the near term is up. As the true picture of future supply becomes apparent to all, oil at $140 will look like a real bargain.

Speculators are not artificially reducing supply through hoarding, which is the kind of fraud that our now-gutted market regulations were meant to curb. Closing the Enron loophole and exposing the NYMEX cabal that manipulates world oil flows to further American and British interests is not going get more oil out of the ground, but it will function as a convenient distraction from the larger depletion issue. At the end of the month, those institutions trading in the oil futures markets must really take their oil or sell it to somebody who will. Inventories are not increasing, and every bit of supply is going into the system. The market is functioning according to its own estimate of the future.

This is not to say that day-to-day oil price is exclusively a function of geology. There is a shortage of drilling rigs worldwide. Aging refineries strain to process the massive flow of capitalism's lifeblood, producing the most oil we will ever produce -- remember, we are at peak. Conflict rules in the oil zones. Offshore is not Ghawar!, i.e., energy returned on energy invested is decreasing as extraction peaks. Climate-crisis wacky weather doesn't help. The dubious sanity of the Oilman with his finger on the biggest red button causing an "insecurity premium" must figure to be at least $9.11 of the price. None of this would be a problem if King Abdullah could still flip the oil switch. Instead of buying back their own stock, the oil majors would be building rigs, tankers and refineries to accommodate future supply increases. We wouldn't need the oil from the conflict zones. We wouldn't have 140,000 American troops building permanent bases on top of the last big puddle of it. The day-to-day price is driven by the fluid economic and political dynamics of resource competition.

*****

If it is true that oil supply is not being artificially but geologically and politically constricted as I have suggested, then the whole discussion of oil speculation as the cause of high prices must have a different purpose. It does! A quick dose of cognitive science reveals it.

The last 30 years of research in cognitive science and linguistics have decisively changed our understanding of human thinking. One major innovation has been the discovery of "frame semantics." Frames are the mental structures that we employ to comprehend reality, and they unconsciously shape our reasoning and action. Frames are not merely abstract associations; rather they are embodied relations in the neural networks of our brains acquired through learning. Frames provide the starting point for the inferences we make about the world. Frames are the basis for thinking itself.

Hotel! Simply reading the word evokes a frame. One thinks immediately of a building with many rooms, clerks, maids and guests. The word implies a whole set of institutionally sanctioned behavioral possibilities and prohibitions for the players of the various roles. It conjures a constellation of locations (guest rooms, lobby, lounge), actions (checking in, checking out, cleaning rooms) and objects (luggage, plastic card keys, and housekeeping carts). It allows us to infer that if someone is a guest, then they probably have luggage, and so on.

Framing expert and Berkley Cognitive Science professor George Lakoff asserts as his first point in an article titled "Simple Framing," "Every word evokes a frame." Words set the stage for thinking. What sort of frame does the term speculation evoke, especially when paired with the term oil?

First, because of oil futures, speculation is specifically an economic phenomenon; it keeps discussion of oil focused on the economic aspects of the problem. Second, in a more colloquial usage, speculation implies generalized uncertainty about something because to speculate is to reason based on inconclusive evidence. Finally, the speculation frame, understood as criminal market manipulation, provides an action structure to which an explanatory narrative can then be attached. We implicitly understand how frames function in the propaganda system if we understand the difference between collateral damage and dead civilians. They deflect and redirect.

Evoking the speculation frame serves to keep the entire discussion of our energy crisis within the province of economics. The implication is that markets, investment and economic growth are primary considerations in understanding it. This frame interprets high oil prices as an economic problem and thus infers that the problem has an economic solution. The appropriate tools to handle the problem are market oversight, tax incentives for business, and removal of restrictions to free enterprise, i.e., permit offshore and ANWAR drilling immediately. The solution is to do more of what we are doing now. The market will adapt and all will be well.

While the energy crisis will have severe economic impacts, it is not fundamentally about economics. It is about human ecology and the limits of growth. Our cultural institutions like driving and consumption conflict directly with the material conditions that make them possible. When the discussion of energy remains in the province of economics, the key assumptions of the economist that the planet is an infinite resource, that the free market will solve all problems, and that growth is a universal good are effectively concealed beyond the focus of critical evaluation. The speculation frame hides the truth by suggesting the wrong context to understand our energy predicament. It just keeps us speculating about what percentage of the price is speculation.

If there is anything the public relations executives running the propaganda system have learned, it is that perceived uncertainty about factual issues generates apathy among the proles. It's no wonder that the Fox News presentation of the "speculation" story is to simply repeat the word speculation as many times as possible. The last 20 years of public discourse on global warming perfectly illustrates the technique: Just keep saying "there is still a debate," and the masses tune out and flip back to HGTV.

Pairing the word oil with the word speculation and repeating it over and over creates the impression that there is some uncertainty about the future of oil rather than merely about the price of oil futures contracts. This short-circuit thought about the issue and reasoned prognostication, like that made by the Association for the Study of Peak Oil, becomes mere speculation. Just think of the vernacular uses of the term speculation, as in "that's just speculation" or "he's only speculating." The speculator is somebody who believes his own ill-founded conjectures.

We are led to reason that there is not enough information about the energy problem to take drastic measures. It's as if the system is screaming, "Don't revolt, don't revolt." While the facts of oil depletion and peak production are undeniable and the inferences about the likely effects of depletion on global politics and economics are very strong arguments, the speculation frame undercuts actions based on these facts. This framing just reinforces the petroleum preservation paralysis that is the precondition of the status quo energy use paradigm.

This oil uncertainty is paradoxically palliating to boomers who lived through the '70s and thus learned to understand energy issues in exclusively economic and political terms. Their apathy stems from the mistaken inference that this energy crisis will be like the last one: painful for a while but only a blip in the permanent bliss of our American petroleum paradise. News flash: There will be no Prudhoe Bay this time around, boys and girls.

The uncertainty associated with oil in the average American mind leaves room for the hope and belief that we'll get back to normal soon enough. Maybe, just maybe, gas prices will drop. Americans will soon realize that a drop in oil prices will only come after the global economy, one that now uses every available drop of crude, crashes and burns in an entropic catastrophe. It will take more than airline inconvenience or high gas prices to get Americans to unplug themselves from the hologram, but remember, petroleum powers the propaganda system, too. It's the lubricant that makes social order possible. I'm betting they will come unplugged in droves when the "Out of Gas" signs start showing up at 7-Eleven, that is, the ones that don't just go postal on the spot. The near future won't be normal!

Joe Average experiences high oil prices as a constriction of discretionary income, or worse, a shortfall for basic needs. This fact requires an explanatory narrative. Such a downgrade in one's standard of living requires someone to blame. Price shocks ascribed to speculation provide this framework.

Speculation that artificially restricts supply through hoarding in order to gouge consumers is a crime. While this is not actually occurring, it makes compelling news copy. There are victims, perpetrators, law enforcement, and a predicable sequence of actions and outcomes. The poor schmuck driving an hour each way to work from his McMansion and the homemaker who can't afford eggs and milk any longer easily recognize themselves as the victims in this cruel petroleum farce. The big boys on the trading floor running up the price of crude, consumed with greed and lust for profit, play the role of dastardly yet faceless criminals. The affable sheriff Levin and his slapstick deputy Stupid, uh, I mean Stupak, investigate the complaints and haul the speculators in for questioning. After some reprimand for the bad apples, all will be back too normal in Consumption County.

While it remains a comforting thought to some that Congress is exercising some sort of oversight, the whole episode of investigative hearings is about creating a scapegoat and thus political cover for the next election. It also provides voters with the illusion of potency and action from their elected representatives. When you can buy whole city blocks of houses for $5,000 apiece in Detroit, "somebody's gotta do sumthin."

Michigan's senatorial contingent likely believes their own speculation about why oil prices have spiked; however, the political calculus remains the proximate cause of their hearings. The speculation explanation pacifies both the drivers and former factory workers composing the Michigan electorate by postponing the grim news that the American auto industry and our personal transportation system are on their way to the morgue. Kudos to Carl for such an exhibition of political jujitsu!

The speculation explanation simply delays the arrival of the moment when we will begin, as a nation, to address the reality of our energy crisis. No market solutions will address the geologic and cultural roots of the problem. Enforcing apathy through uncertainty will only buy time for the status quo to profit from the collapse and temporarily deflect the political wrath of the proletariat. The hope for a return to normalcy afforded by the contention that today's price shocks resulted from criminal behavior also postpones the tipping point of the national consciousness necessary to demand reality-based energy policy. It won't be long until disruptions and disasters that are the face of the energy crisis make it impossible to keep the accoutrements of the American Way of Life up and running.

One other aspect of the speculation frame bears mentioning. The speculator engages in risky business ventures in the hope of considerable payoff. The speculator is a gambler. However, buying into the speculation frame places another risky bet. The American people, by not demanding effective leadership that places energy and environment as the number one priority, have rolled the dice, and the odds are against them. The stakes are nothing less than our children's future. Let's hope we don't lose everything.