TRYING TO STAY SANE IN AN INSANE WORLD – PART 1

“I mean—hell, I been surprised how sane you guys all are. As near as I can tell you’re not any crazier than the average asshole on the street.” – R.P. McMurphy – One Flew Over the Cuckoo’s Nest

“Years ago, it meant something to be crazy. Now everyone’s crazy.” – Charles Manson

“In America, the criminally insane rule and the rest of us, or the vast majority of the rest of us, either do not care, do not know, or are distracted and properly brainwashed into acquiescence.” – Kurt Nimmo

I have to admit to being baffled by the aptitude of the Wall Street and K Street financial elite to keep their Ponzi scheme growing. I consider myself to be a rational, sane human being who understands math and bases his assessments upon facts and a sensible appraisal of the relevant information obtained from trustworthy sources. Of course, finding trustworthy sources is difficult when you live in a corrupt, crony-capitalist, fascist state, controlled by banking, corporate and military interests who retain absolute control over the mainstream media and governmental propaganda agencies. Those seeking truth must pursue it through the alternative media and seeking out unbiased critical thinkers who relentlessly abide by what the facts expose. This is no time for wishful thinking, delusions and fantasies. In the end, the facts are all that matter. As Heinlein noted decades ago, the future is uncertain so facts are essential in navigating a course that doesn’t lead you to ruin upon the shoals of ignorance.

“What are the facts? Again and again and again – what are the facts? Shun wishful thinking, ignore divine revelation, forget what “the stars foretell,” avoid opinion, care not what the neighbors think, never mind the un-guessable “verdict of history” – what are the facts, and to how many decimal places? You pilot always into an unknown future; facts are your single clue. Get the facts!” ― Robert A. Heinlein

Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system.

This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19^th century.

“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

The “solutions” imposed by the supposed brightest financial Ivy League educated minds and corrupt bought off political class upon people of the United States since the Wall Street created 2008 worldwide financial collapse are insane and designed to only further enrich the crony capitalists and their banker brethren. The maniacs are ruling the asylum. John Lennon saw the writing on the wall forty five years ago.

“Our society is run by insane people for insane objectives…. I think we’re being run by maniacs for maniacal ends … and I think I’m liable to be put away as insane for expressing that. That’s what’s insane about it.” – John Lennon, Interview BBC-TV (June 22, 1968)

The world is most certainly ruled by a small group of extremely wealthy evil men who desire ever more treasure, supremacy and control, but the vast majority of Americans have stood idly by mesmerized by their iGadgets and believing buying shit they don’t need with money they don’t have is the path to happiness and prosperity, while their wealth, liberty and self-respect were stolen by the financial elite. Our idiot culture, that celebrates reality TV morons, low IQ millionaires playing children’s sports, egomaniacal Hollywood hacks, self-promoting Wall Street financers, and self-serving corrupt ideologue politicians, has been degenerating for decades.

“We are in the process of creating what deserves to be called the idiot culture. Not an idiot sub-culture, which every society has bubbling beneath the surface and which can provide harmless fun; but the culture itself. For the first time, the weird and the stupid and the coarse are becoming our cultural norm, even our cultural ideal.” – Carl Bernstein -1992

The examples of our national insanity are almost too vast to document, but any critical assessment of what we’ve done over the last one hundred years reveals the idiocracy that has engulfed our collapsing empire.

The Madness of Crowds

“In reading The History of Nations, we find that, like individuals, they have their whims and their peculiarities, their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.” – Charles MacKay – Extraordinary Popular Delusions and the Madness of Crowds

We have become a nation that seamlessly goes mad every five years in pursuit of some new delusionary fantasy sold to us by the ruling class, only to see those dreams shattered like a wooden ship on the reef of reality. You can never underestimate the power of human stupidity. Ben Bernanke and his Federal Reserve cronies have printed $2.6 trillion of new money out of thin air since September 2008 in order to prop up their Wall Street owners, who had engineered the largest control fraud (mortgage debt/housing bubble) in world history, recklessly gambled in their ravenous appetite for sordid profits, and drove their firms into insolvency. It took the Federal Reserve 95 years to accumulate a balance sheet of $900 billion of safe U.S. Treasuries.

They have insanely quadrupled their balance sheet in the last 5 years by accumulating toxic mortgage debt from Wall Street banks and purchasing the majority of new Treasury debt being issued to fund the Federal government’s insane trillion dollar annual deficits. Bernanke, the corporate media, government apparatchiks, and captured political class act as if this is normal, when it is clearly the act of a desperate ruling class in its final death throes. Bernanke has leveraged his balance sheet 60 to 1. Lehman and Bear Stearns were leveraged 30 to 1 when they collapsed. The 100 basis point move in rates over the space of two months has resulted in Bernanke losing $200 billion and effectively wiping out his $55 billion of capital.

Of course, in a corrupt regime accounting fraud is encouraged and applauded by the status quo. Just as the spineless accountants on the FASB buckled to threats from Bernanke and Paulson in early 2009 and reversed the requirement that assets be marked to market so the felonious Wall Street banks could fraudulently hide their insolvency, the Federal Reserve has decided their losses don’t matter. The Federal Reserve classifies their losses as an asset. Don’t you wish you could classify your 401k losses and your home value losses as an asset? The tapering bullshit storyline is just another attempt to distract the masses from focusing on the fact that Bernanke will never stop expanding his balance sheet because if he stops the financial system will collapse in a catastrophic implosion. The Ponzi scheme will continue until loss of faith leads to a scramble away from the U.S. dollar.

Since the infamous creation of the Federal Reserve by a secretive cabal of bankers and politicians in 1913, the ultimate destination of the American empire was set. Every fiat currency in world history has collapsed. Our entire system has been based on infinite exponential growth. The fallacy of American exceptionalism has been built on an underpinning of pure stupid luck and the issuance of more and more debt. The American empire grew to epic proportions due to the discovery of cheap easily accessible oil in the late 19^th century and the physical and economic destruction of Europe, Russia and Japan during World War II. The accumulation of debt was fairly moderate during the glory years after World War II, but began to accelerate after the fateful year of 1971 when U.S. oil production peaked and Tricky Dick Nixon removed the last vestiges of restraint from central bankers and politicians by closing the gold window. With the shackles removed from the wrists of corruptible knaves and shysters, America’s future depended upon the wisdom, honesty and financial acumen of Washington politicians and Wall Street financers. Once the citizens realized they could vote for more bread and circuses, our ultimate demise was set in motion. A nation that had produced real annual growth of 4% during the 1950’s and 1960’s has seen a steady decline for the last four decades.

The term pushing on a string describes the Quantitative Easing (literally money printing) and Keynesian debt financed pork spending efforts of our increasingly frantic owners. The insanity of what we’ve done since 1971 is almost too crazy to comprehend. In the first 182 years of our existence the leaders we elected to steward the nation accumulated $400 billion of national debt. By 1981, unleashed from any semblance of spending control, the politicians and bankers had added another $600 billion of debt, a 150% increase in 10 years. By 1991 our beloved leaders had added another $2.6 trillion of debt, another 160% increase in 10 years. By 2001 another $2.2 trillion had been accumulated, only a 60% increase due to the end of the Cold War and a one-time tax surge from the Dot.com stock bubble. Bush’s worldwide War on Terror, expansion of the police state, tax rebate stimulus idiocy, and expansion of the welfare state (Medicare Part D) drove the national debt up by another $2.2 trillion in just eight years, a 40% increase.

The insane amassing of debt since 2008 has put a final nail in the coffin of the ridiculous Keynesian theory, as the Federal government has increased annual spending by 35% over the last five years and the economy is still moribund. Our fearless leaders have driven the national debt from $7.8 trillion to $16.7 trillion in less than five years, a 110% increase. The country continues to add $2 to $3 billion of debt per day. Consider how insane it is that we now accumulate more debt in half a year than we did cumulatively over the first 182 years of our existence as a country. And our elected, or should I say selected, leaders, cheer on the intellectually bankrupt academics like Bernanke whose only solution to every crisis is to print moar and then lie to the American people about his true purpose, act as if annually spending $1 trillion more than we collect while knowing there are over $200 trillion of unfunded promises to fulfill is a reasonable and realistic way to manage the national finances. Any sane person knows our current path will lead to ruin. When you need to issue new debt in order to honor old debt, the end is in sight.

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The multitude of insane responses to a financial crisis created by a few greedy psychopathic bankers will be looked upon by historians with contempt and scorn. Future generations will wonder “What were they thinking?” Trillions in wealth were vaporized due to the actions of a small secretive league of highly educated, egocentric psychopaths whose warped sense of morality led them to pillage the wealth of the nation through fraudulent financial products, bribing regulatory agencies, stabbing clients and competitors in the back, and peddling lies, propaganda and misinformation to the public through their captured media mouthpieces. Not only haven’t any predator bankers been thrown in jail, but these villains have grown their parasitic entities to enormous proportions while paying themselves obscene billion dollar bonuses. Jon Corzine stole $1.2 billion directly from the accounts of his customers to cover his gambling losses and he remains free to laze about in one of his five gated mansions. The largest banks on earth have been caught red handed forging mortgage documents, rigging LIBOR, front running the muppets with non-public economic information, insider dealing, and using their HFT supercomputers to manipulate the markets at their whim. Government spy agencies regularly use the U.S. Constitution like toilet paper while accumulating electronic dossiers on every citizen in the country. The rule of law does not exist for the ruling class.

Only in a world gone insane would we be celebrating Wall Street generating all-time high profits through the use of accounting fraud and Bernanke filling their coffers with trillions of interest free money while bilking senior citizens out of $400 billion per year of interest income through his dastardly ZIRP “save a Wall Street banker” scheme. Bernanke has stolen close to $2 trillion from the bank accounts of little old ladies since 2008 and given it to Jamie Dimon, Lloyd Blankfien and the rest of the Wall Street scumbags. While Wall Street and the crony capitalist mega-corporations report record profits, Main Street is left with 5 million less full-time jobs than they had in 2007 and a real unemployment rate exceeding 20%. While the government has insanely reported a recovering economy since mid-2009, the food stamp rolls have grown from 33 million to 47 million. The ruling class cheers the record highs in the stock market that overwhelmingly benefit the top .1% because they are the .1%. Meanwhile, the average schmuck out in the hinterlands is paying double the price they were paying for gas in 2009 and their everyday living costs are rising by greater than 5% annually. Luckily for the financial elite, the average American would rather watch Honey Boo Boo than try to understand the evilness of Federal Reserve created inflation. The economic recovery storyline is obliterated by the fact that real household income is still 9% below its 2008 peak and amazingly 8% below its 2000 level.

Since the 2009 low, the household net worth of the wealthiest 7% has grown by 28%, while the other 93% have seen their net worth decline by a further 4%. The profits accrue to those who run the show, buy the politicians, write the laws, command the media propaganda machine and control the currency. As a sane person in this insane world I’m flabbergasted that there is virtually no outrage at the perpetrators of these crimes against humanity. Americans have earned the moniker – ignorant masses. Bread and circuses have won the day in our declining empire. The oligarchs thank you.

The blame doesn’t rest solely on the shoulders of the evil men running the show. They have only done what we allowed them to do. From top to bottom our society has hopped on the crazy train. The lack of national morality, sense of civic duty, inter-generational responsibility, and willful ignorance regarding sensible financial policies has led us to a tipping point. Decades of feckless self-serving political leadership making entitlement promises they could never honor to win votes, combined with a parasitic financial class peddling debt to millions of witless, narcissistic, math challenged, materialistic morons, has left the country in debt up to its eyeballs with no escape other than cataclysmic default. Michael Lewis documents the bleeding out of our society in his recent book:

“The people who had the power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.” – Michael Lewis – Boomerang

The insanity of our debt accumulation in relation to our pathetic economic growth is clearly evident to even an Ivy League educated economist or a bubble headed CNBC anchorwoman. Since 1971 nominal GDP has grown by a factor of 14. Over this same time frame total credit market debt (household, corporate, government) has grown by a factor of 32. Real GDP (even using the fraudulent BLS manipulated CPI) has only expanded by a factor of 3.5 since 1971. The exponential growth model is clearly failing, with debt going hyperbolic, while GDP has stagnated.

Since 2007 real GDP has gone up $500 billion while total credit market debt has gone up by $6 trillion. Only an insane society would allow itself to be convinced by the perpetrators of the financial crimes that collapsed our economic system that accelerating the level of debt in our system will resolve the dilemma of Too Big to Trust banker insolvency. Transferring the immense losses of greedy sham capitalist gambling addicts from their insolvent balance sheets onto the balance sheets of the taxpayer has allowed the criminals to retain and expand their wealth, while sovereign states shift the pain and suffering onto the backs of the sinking middle class. This is a worldwide phenomenon perpetuated by central bankers at the behest of their crony capitalist co-conspirators. They call it capitalism when the scams, dodges and swindles work and the profits accrue to the schemers. When the gamblers and extreme risk addicts roll craps they use their crony capitalist connections, bought with blood money, to socialize their losses. The game is rigged and your owners don’t care about your hopes and dreams or your children’s future. They care about their own wealth and lifestyles of luxury. When the richest 300 people in the world have a greater net worth than the poorest 3 billion people on earth, a sane person realizes a chaotic end of the existing social order beckons.

“All over the world people borrowed vast sums of money they could never repay. The honest toting up, and taking, of the losses is being delayed. There’s a reason for this. The bad debts are owed, largely, to big banks. The big banks (even bigger than they were at the start of this crisis) and the people who own them enjoy a wildly disproportionate amount of political influence. And so, even now, five years into this mess, we remain at the mercy of the failed financial institutions that sit at the center of our capitalism. Geithner & Bernanke, along with their European counterparts, are doing everything in their power to prevent banks from failing. But the effect of this new financial order is bizarre: capitalism for everyone but the capitalists. Ordinary workers remain fully exposed to the increasingly harsh collisions in the marketplace while the highest paid financial elites ride protected by a passenger airbag.” – Michael Lewis – Boomerang

Clearly we’ve entered the final phase of our debt financed orgy of narcissistic materialism and self-absorbed avarice. The unsustainability of our course is a fact. Our society has gone mad en-masse but we are only recovering our sanity one by one. The global financial system is insolvent. A fractional reserve fiat money based system requires continuous growth or it collapses. The global banking system is overleveraged and real global growth is stagnant. Central bankers are not smart men. They have one response to every crisis – print!!! Bernanke and his fellow banker cronies are printing at hyper-speed in order to prop up the terminally ill mega-banks. Bernanke feigns confusion at the fact that his QE to infinity and ZIRP have only benefitted his banker puppet masters and the richest .1%, while further impoverishing senior citizen savers and the working middle class.

The anger at the true Wall Street malefactors manifested itself in the Tea Party movement and Occupy Wall Street movement, but both efforts were quickly hijacked by neo-con right wingers and socialist left wingers for their own ideological purposes. The existing social order continues to hold the reins of power, but their grip is growing precarious. The anger, dismay and resentment in the country simmer beneath the surface. The average person senses that all is not well, but most absurdly continue to believe the lies and propaganda spewed at them on a daily basis by the ruling class and their corporate media pawns. When the next shoe drops and billions of stock market and housing wealth are wiped out again, the national anger will sweep away the corrupt social order in a torrent of blood and retribution. Innocent and guilty alike will suffer the consequences. Michael Lewis is somewhat perplexed by the lack of outrage and violence so far.

“A lot has happened. And yet, given the provocation, it’s amazing how little has happened. No one on Wall Street has been shot, or even jailed – and the existing social order has not been seriously challenged. There’s a reason for this, too. The anger arising from the financial crisis finds no natural channel. In another era – an era before catastrophic experiments with radical socialism and nationalism – we would be watching market capitalism being displaced by something far uglier. But today there is no natural place for anger to flow, and so the anger flows haphazardly, like raindrops down a windowpane. The only political ideology that anger benefits these days is anarchy. From the point of view of those who enjoy political stability, it’s a stroke of luck that anarchists have no natural talent for organizing themselves. But how long will it take them to learn?” – Michael Lewis – Boomerang

Staying sane in a society gone mad is not easy. Millions of people believe themselves to be sane, but they have really just adapted to an insane society, so they appear sane within the warped paradigm of that insane society. The truly sane people appear to be insane in an insane society. It’s enough to drive a man crazy. The immense forces of normalcy bias and social inertia have led millions to refuse to understand the mathematical certainty of the coming collapse. The worldwide banking system is like a great white shark that needs to keep moving or it dies. Exponential growth and continuous credit expansion have been the essential ingredients to expanding the American empire, but the growth has stopped, while the debt keeps growing. Infinite growth on a finite planet is impossible. As natural resources deplete and become more expensive to obtain, while the planet’s population continues to grow, the fractional reserve banking system and the nation states who continue to pile up trillions in debt will suddenly suffer a catastrophic collapse. We are in the end stages of a confidence game. Your government will not give you warning. We need to come to our senses one by one, until there are enough sane people to tip the scales in our favor. I’ve concluded that I live in a dishonest, insane, intolerable world and consider it my duty to spread discontent among those I can reach. I’m a dangerous man in the eyes of our corporate fascist surveillance state. So be it.

“The most dangerous man, to any government, is the man who is able to think things out for himself without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is apt to spread discontent among those who are.” – H.L. Mencken

In Part 2 of this article I will attempt to figure out why mass insanity has gripped the world and ponder what might happen when sanity returns.

CALIFORNIA DREAMIN

Colma should be happy. Another reason people will be staying away from California. So let me get this straight. Tax revenues are plunging because rich people are leaving the state and no one can afford to shop anymore. Cities are declaring bankruptcy left and right because they promised government workers gold plated health and pension benefits. Gas prices are 17% higher than the rest of the country because they haven’t allowed a refinery to be built in three decades. They have an unemployment rate over 11%. And Moonbeam Jerry Brown is urging them to vote themselves a tax increase in November so he can keep the lights on in Sacramento. At least they have nice weather.

Calif. gas prices jump by up to 20 cents overnight

SAN FRANCISCO — Californians woke up to a shock Friday as overnight gasoline prices jumped by as much as 20 cents a gallon in some areas, ending a week of soaring costs that saw some stations close and others charge record prices.

The average price of regular gas across the state was nearly $4.49 a gallon, the highest in the nation, according to AAA’s Daily Fuel Gauge report.

In Southern California, the price jumped 20 cents a gallon overnight to $4.53 in Ventura. And in the Los Angeles-Long Beach area prices went up 19 cents to nearly $4.54. And it wasn’t any better to the north, as a gallon of regular gas in San Francisco averaged nearly $4.60.

In many areas, prices have jumped 40 cents in a week as refinery problems have created shortages and helped send wholesale prices soaring. Some stations ran out of gas and shut down Thursday rather than pay those costs.

Even Costco, the giant discount store chain that sells large volumes of gas, decided to close some stations, the Los Angeles Times (lat.ms/OGwEV2) reported.

“We do not know when we will be resupplied,” read a sign at one Southern California Costco, according to the Times.

Other gas stations charged more than $5 a gallon. The Low-P station in Calabasas charged $5.69 Thursday. The pumps bore hand-written signs reading: “We are sorry, it is not our fault,” the Times said.

While gas prices have spiked around the nation, refinery outages and pipeline problems have added to woes in California.

Among the recent disruptions, an Aug. 6 fire at a Chevron Corp. refinery in Richmond left one of the region’s largest refineries producing at a reduced capacity. A power failure in Southern California has affected an Exxon Mobil Corp. refinery, and a Chevron pipeline that moves crude to Northern California also was shut down.

The national average for gas is about $3.79 a gallon, the highest ever for this time of year. However, gas prices in many states have started decreasing, which is typical for October.

But in California, gasoline inventories are the lowest in more than 10 years — a situation made worse by the state’s strict pollution limits that require a special blend of cleaner-burning gasoline during hot summer months.

Patrick DeHaan, senior petroleum analyst at GasBuddy.com, said he is seeing the highest prices in the state around Los Angeles, where on Thursday at least five stations have crossed the $5 a gallon mark, including $5.29 in Burbank and $5.11 in Norwalk.

Prices will keep rising, he says, because in the past week wholesale gasoline prices have jumped $1 a gallon, but average retail prices have increased only 30 cents.

“This is one of the easiest forecasts: Retail prices are going to skyrocket,” DeHaan said.

The jump in wholesale prices can be particularly tough on independent gas stations that often pay more for their gas because they are not part of a larger chain.

Tom Kloza, chief oil analyst at Oil Price Information Service, said he’s heard of a few California station owners shutting their pumps rather than charging the $4.90 a gallon or more necessary to break even.

“Wholesale price increases lead to retail price increases,” Kloza said. “But there is some restraint among companies who do not want to exercise their current pricing power and irritate their customers.”

Some analysts think prices nationally will begin to decline soon but say California could see a longer spike given its unique fuel requirements.

“Nationally, I believe most prices will wobble to and fro for the next week or so, with an eventual slow but steady attrition in retail gas prices, particularly in the Midwest and Southeast,” Kloza said. “California is a wild card.”

WHY ARE GAS PRICES SOARING ON EAST COAST?

The price of gas at the station near my house has gone from $3.45 to $3.64 a gallon in the last 10 days. This is a 5.5% increase in less than two weeks. Gasoline usage in the U.S. has been plunging all year. The war rhetoric with Iran has been subdued. The economy is clearly in recession. WTF???

Oil prices and gas prices should be declining. But oil topped $89 per barrel this morning, back to the levels of late May, and $11 higher than 3 weeks ago. The three charts below paint an odd picture. East coast cities like Boston and Philly are experiencing a much larger surge than Chicago and LA. Of course, prices in Chicago and LA are still 6% to 8% higher than East Coast prices, likely due to taxes. I’m baffled by the relatively flat prices in Chicago and LA. Maybe someone out there has some insight.

The last chart shows the lag in prices rising for oil versus gasoline. Within the next month people on the East Coast will be paying $3.70 per gallon and the Midwest and West Coast will again push above $4.00 per gallon. This will be a further boost to food prices, as all those drought stricken crops need to be transported by truck to your local Piggly Wiggly.

With a full blown recession and surging food and energy costs, how Obama gets re-elected in November is beyond me. As he grows desperate, will he purposely generate either a war or social unrest in our cities? His only chance to retain power will be to distract the masses from their economic plight.

IT ONLY TOOK A GLOBAL DEPRESSION TO REDUCE GAS PRICES BY 40 CENTS

You can’t watch the mainstream media propaganda channels for more than ten minutes without a talking head breathlessly announcing that gas prices have dropped for the 24^th day in a row and are now back to $3.55 a gallon. Wall Street oil analysts, who are paid hundreds of thousands of dollars per year to tell us why prices rose or fell after the fact, are paraded on CNBC to proclaim the huge consumer windfall from the drop in price. This is just another episode of a never ending reality show, designed to keep the average American sedated so they’ll continue to spend money they don’t have buying crap they don’t need. The brainless twits that pass for journalists in the corporate mainstream media never give the viewer or reader any historical context to judge the true impact of the price increase or decrease. The government agencies promoting the storyline of those in power extrapolate the current trend and ignore the basic facts of supply, demand, price and peak oil. The EIA is now predicting further drops in prices. Two months ago they predicted steadily rising prices through the summer. What would we do without these government drones guiding us?

As you can see from the chart, gas prices tend to be volatile and unpredictable in the short term. You can also see that since 1998 the trend has been relentlessly higher. The average inflation adjusted price of gasoline in 1998 was $1.41 per gallon, versus $3.55 today, a 152% increase in fourteen years. Over this same time frame the BLS manipulated CPI was up only 44%. If we are swimming in oil, as the MSM pundits claim, why the tremendous surge in price? It must be those evil oil companies. It couldn’t possibly be the impact of peak oil. To acknowledge the fact that worldwide oil production has reached its peak would be to concede that our suburban sprawl, just in time world is drawing to an excruciating end. So the politicians spout their assigned storylines, supported by their paid off “experts” (aka Daniel Yergin), and unquestioningly reported as fact by their designated corporate media outlet. Those of a liberal bent assail oil companies and speculators; refuse to acknowledge the law of supply and demand, while touting green energy as the solution to all our energy needs. Those of a conservative bent believe in attacking foreign countries to secure “our” oil, refuse to acknowledge the law of supply and demand, and spout “drill, drill, drill” slogans because dealing with facts is inconvenient. The willfully ignorant public believes whichever storyline matches their preconceived beliefs. All is well – no one is required to think critically. Thinking is hard.

There are numerous factors that affect the price of oil on a daily basis, but at the end of the day supply and demand determine price. The chart below documents the key external events that have had a major impact on oil prices since 1970. The vital fact that you won’t hear on CNBC is that every recession since 1970 has been immediately preceded by an oil price spike. Anyone living in the real world (this excludes Cramer, Liesman, Bartiromo, & Kudlow) knows we have entered part two of the Greater Depression. The surge in oil prices in the last two years has precipitated this renewed downturn.

The MSM blathering baboons of bullshit dutifully report the price of gas on a given day. People who live in the real world fill up their gas tanks every week, so the average price over a period of time is what matters. The average price of a gallon of gasoline in 2008 was $3.39. The average price in 2011 was $3.48. The average price in 2012 has been $3.62 thus far. This data paints an entirely different picture than the one painted by the politicians, experts and the clueless captured media. Gas prices are higher than they were prior to the last economic implosion. Cause and effect is a concept beyond the intellectual capabilities of MSM journalists and the millions of government educated zombies they mesmerize with misinformation. The lack of intellectual curiosity and critical thinking skills plays directly into the hands of those with a storyline to sell or truth to obscure.

Swimming in Oil

The recent storyline proliferated by the MSM at the behest of Washington DC politicians and the corporate interests that control them, is that the U.S. is on the verge of energy independence, with hundreds of years of plentiful oil right under our feet. The chart below made the rounds last week on Bloomberg, defender and mouthpiece of billionaires everywhere. This chart surely proves that peak oil is bullshit. Right?

Besides the false representation of oil production and the misleading conclusion that we have more oil than we need, the chart and Bloomberg screed does not provide the true context of why worldwide demand is tumbling. The chart is NOT showing global crude oil production. It is showing global oil and other liquids supply, which includes crude and condensate, natural gas plant liquids, other liquids (mostly ethanol), and processing gains (increase in volume from refining heavy oil). The MSM would rather mislead the public than provide the true picture of the supposed oil production boom. The question is whether the MSM is misleading the public due to their own journalistic incompetence or are they carrying out their assigned mission on behalf of the corporate oligarchs running the kingdom.

The chart below reveals a truer picture of the worldwide energy situation. Conventional oil production hit its peak/plateau around 74 million barrels per day at the end of 2004, and has barely budged from that level over the last eight years. Despite all the rhetoric about the North American oil boom, conventional oil production is at virtually the same level today as it was in 2004. The U.S.(shale oil) and Canadian (tar sands) gains in production have been matched by the collapse in Mexican production. The Middle East countries produced 23.3 million barrels in September 2004. The average price of a barrel of oil in 2004 was $38. They are now only producing 23.9 million barrels when prices are 120% higher.

Global oil demand in 2004 was around 84 million barrels per day. To increase liquid fuel supply to meet the 90 million barrels per day demand we had to turn to unconventional fuels like tar sands, tight oil, and biofuels, all of which have far higher production costs and far less energy content than sweet crude. As the easy to access, cheap to produce ($20 per barrel in Saudi Arabia), close to the surface sweet crude has been depleted, it has been replaced by heavy crude, tar sands, deep-water oil, and shale oil, with production costs in excess of $80 per barrel. Anyone anticipating a long-term decline in fuel prices must be smoking tar sands in their bong. The liquids that have “replaced” conventional crude have a few slight drawbacks. Natural gas liquids provide about 70% as much energy per barrel as crude oil, so a barrel of NGL is not equivalent to a barrel of crude. Have you filled up your SUV lately with some NGL? Ethanol provides only 60% as much energy per barrel as crude oil and its EROEI is pitifully low. The energy returned on energy invested for these non-conventional sources of energy approaches the minimum limits unless prices rise dramatically. The Obama green army does not want this chart making its way into the public discourse. Their fantasyland of renewable energy solutions is proven to be a fool’s errand.

Catch-22 Energy Edition

The price of a barrel of West Texas crude is currently $86 per barrel, down from $109 per barrel in February. Obama supporters will proclaim that his threat to crack down on speculators had the desired effect. He must have scared those nasty speculators with his gravitas. The price rise surely didn’t have anything to do with the U.S. led attack on Libya, the act of war economic sanctions on Iran, the beating of Israel/U.S. war drums, Japan demand due to the shutdown of their nuclear power industry, or the relentlessly higher demand from China and India. And now the MSM is trying to spin a yarn that prices have dropped by 21% because worldwide supply is surging. That is so much more palatable than telling the truth and admitting that we’ve entered the 2^nd phase of the Greater Depression.

It took $140 a barrel in oil in 2008 to tip the world into recession. Worldwide economies were much stronger then. The U.S. National Debt has risen by $6.5 trillion, or 70% since 2008. Real GDP has risen by $200 billion since 2008, or a 1.5% increase. Debt to GDP has risen from 64% to 102%. Consumer debt at $2.55 trillion is exactly the same as the 2008 level even after Wall Street banks have written off over $1 trillion, subsidized by the American taxpayer. The consumer deleveraging storyline is completely false. In 2008 there were 234 million working age Americans and 145 million of them were employed. Today there are 243 million working age Americans and 142 million of them are employed. In 2008 there were 28 million Americans in the food stamp program. Today there are 46 million Americans collecting food stamps. The economic situation in Europe has deteriorated at a far greater rate. Therefore, it is not surprising that it only took $109 a barrel oil to push the world back into recession.

The main reason prices are dropping is the collapse in demand from Europe and the United States. The bumpy plateau of peak oil is in full force. Prices rise to the point where they push economies into recession, demand crashes due to the recession, and prices decline. The double whammy of oil prices reaching $111 a barrel in 2011 and $109 a barrel in 2012 have sapped the life out of the American consumer. This is reflected in the plunge in gasoline and petroleum usage since 2008, with a temporary leveling off in 2010, followed by a further nosedive since 2011. As this recession deepens over the next six months, prices will likely fall further. But this is where the Catch-22 kicks in.

Once prices drop below $80 a barrel it sets in motion a reduction in capital investment, as new production projects are not economically feasible below $80 per barrel. Oil analyst Chris Nedler explains the Catch-22 aspect of oil prices in a recent article:

Research by veteran petroleum economist Chris Skrebowski, along with analysts Steven Kopits and Robert Hirsch, details the new costs: $40 – $80 a barrel for a new barrel of production capacity in some OPEC countries; $70 – $90 a barrel for the Canadian tar sands and heavy oil from Venezuela’s Orinoco belt; and $70 – $80 a barrel for deep-water oil. Various sources suggest that a price of at least $80 is needed to sustain U.S. tight oil production.

Those are just the production costs, however. In order to pacify its population during the Arab Spring and pay for significant new infrastructure projects, Saudi Arabia has made enormous financial commitments in the past several years. The kingdom really needs $90 – $100 a barrel now to balance its budget. Other major exporters like Venezuela and Russia have similar budget-driven incentives to keep prices high.

Globally, Skrebowski estimates that it costs $80 – $110 to bring a new barrel of production capacity online. Research from IEA and others shows that the more marginal liquids like Arctic oil, gas-to-liquids, coal-to-liquids, and biofuels are toward the top end of that range.

My own research suggests that $85 is really the comfortable global minimum. That’s the price now needed to break even in the Canadian tar sands, and it also seems to be roughly the level at which banks and major exploration companies are willing to commit the billions of dollars it takes to develop new projects.

Oil prices may temporarily drop below $80, but prices below that level for a prolonged period will lead to supply being constricted, which will ultimately lead to higher prices. The storyline of hundreds of years of Bakken shale oil that will make the U.S. energy independent is the latest fiction to be peddled by the oligarchs as a way to sedate and confuse the masses.

What the Frack

U.S. oil production in 2007 averaged 8.5 million barrels per day. Today, the U.S. is producing 10.7 million barrels per day. We must have hit the jackpot. Not quite. Actual crude oil production has increased by 1 million barrels per day, a 20% increase. The other 1.2 million barrels have been from liquefied natural gas (up 34%) and government subsidized ethanol (up 100%).

The U.S. crude oil production is at the same level it was in 1998, but somehow we are on the verge of becoming energy independent. The recent increase is solely due to the horizontal drilling and hydraulic fracturing of shale deposits in Texas and North Dakota. You don’t hear much about Alaskan production declining for the ninth year in a row and California production declining to the lowest level in three decades. The paid shills predicting Bakken production of 3 million barrels per day are purposely lying or just plain delusional.

North Dakota oil production has reached 550,000 barrels per day versus 187,000 barrels per day in 2009. Simpletons in the MSM will just extrapolate this growth to 3 million barrels by 2020. No need to examine the facts. Oil market expert Tom Whipple reveals the dirty secrets behind the Bakken shale oil miracle:

It took the production from 6,617 wells to produce North Dakota’s 546,000 b/d in January. Divide the daily production by the number of wells and you get an astoundingly low 82 b/d from each well. I say “astounding” because a good new offshore well can do 50,000 b/d. BP’s Macondo well which exploded in the Gulf a couple of years ago was pumping out an estimated 53,000 b/d before it was capped.

Now a North Dakota shale oil well is not in the cost class of a deep-water offshore platform which can run into the billions, but they do cost about three times as much as a classic onshore oil well as they first must be drilled down 11,000 feet and then 10,000 horizontally through the oil bearing layer before the fracturing of the rock can take place. The “fracking” involves at least 15 massive pumps that inject water and other chemicals into the well. Take a Google Earth flight over northwestern North Dakota. The fracked wells are hard to miss as there are now about 9,000 of them and they are each the size of a football field.

There is still more — fracked wells don’t keep producing very long. Although a few newly fracked wells may start out producing in the vicinity of 1,000 barrels a day, this rate usually falls by 65 percent the first year; 35 percent the second; and another 15 percent the third. Within a few years most wells are producing in the vicinity of 100 b/d or less which is why the state average for January is only 82 b/d despite the addition of 1300 new wells in 2011.

The rapid depletion of these wells, enormous expense to drill new wells, oil prices barely above cost of production, low EROEI, swiftly falling Alaskan and shallow water production, and the snail’s pace of deep water production are not a recipe for energy independence. Shale oil production will never exceed 1 million barrels per day. And if you believe Saudi Arabia’s promises to fulfill any shortfalls, I’ve got some delightful beachfront property in Afghanistan to sell you. Saudi conventional crude oil production is at the same level it was in 2005.

The seven year Saudi plateau is just a precursor to what is going to happen over the next decade. Saudi Arabia began pumping oil in 1945. It will all be gone by 2045. You can’t extract an infinite amount of oil from a finite world. Pretending this isn’t true won’t make it so. Oil has been the lifeblood of our nation since the late 1800s. The depletion of this essential ingredient of the modern world will not lead to a sudden death for our way of life but a slow downward spiral of waning supply, escalating prices, and economic decay.

The sustained high and rising oil prices will be economically destructive as our debt saturated, suburban sprawl, mall centric, SUV crazed, cheap oil dependent society methodically and agonizingly implodes. Chris Skrebowski describes our future succinctly:

“Unless and until adaptive responses are large and fast enough to constrain the upward trend of oil prices, the primary adaptive response will be periodic economic crashes of a magnitude that depresses oil consumption and oil prices.”

We’ve entered one of these periodic economic crashes. They are coming faster and faster. So enjoy that 40 cent drop in gas prices as you drive down to sign up for food stamps. The Saudis have a saying that acknowledges their luck in being born on top of billions of barrels of oil and the inevitability of its depletion:

“My father rode a camel, I drive a car, my son flies a jet plane, his son will ride a camel.”

Delusional Americans believe they have a right to cheap plentiful oil forever. They refuse to acknowledge that luck has played the major part in their rise to economic power. The American saying will be:

My great grandfather rode a horse, my grandfather drove a Model T, my father drove a Buick, I leased a Cadillac Escalade, my son died in the Middle East fighting for my oil, his son will never be born.

YOU AIN’T SEEN NOTHING YET – PART TWO

This is Part Two of a three part series trying to make sense of the Crisis period we entered in 2008. Click here to read: PART ONE

Catalyst of Change

“As late as December 1773, November 1859, and October 1929, the American people had no idea how close it was. Then sudden sparks (the Boston Tea Party, John Brown’s raid and execution, Black Tuesday) transformed the public mood, swiftly and permanently. Over the next two decades or so, society convulsed. Emergencies required massive sacrifices from a citizenry that responded by putting community ahead of self. Leaders led, and people trusted them. As a new social contract was created, people overcame challenges once thought to be insurmountable – and used the Crisis to elevate themselves and their nation to higher plane of civilization.” – Strauss & Howe – The Fourth Turning

Anyone who hasn’t sensed a mood change in this country since the 2008 financial meltdown is either ignorant or in denial. Millions of Americans fall into one of these categories, but many people realize something has changed – and not for the better. The sense of pure financial panic that existed during September and October of 2008 had not been seen since the dark days of 1929. Our leaders used the initial terror and fear to ram through TARP and stimulus packages that rewarded the perpetrators of the financial collapse rather than helping the middle class who lost 8 million jobs, destroyed by Wall Street criminality. The stock market plunged by 57% from its 2007 high by March 2009. What has happened since September 2008 has set the stage for the next downward leg in this Crisis. The rich and powerful have pulled out all the stops and saved themselves at the expense of the many. Despite overwhelming proof of unabashed mortgage fraud, rating agency bribery, document forgery on a grand scale and insider trading based on non-public information, the brazen audacity of Wall Street oligarchs is reminiscent of the late stages of the Roman Empire.

“Crime, once exposed, has no refuge but in audacity.”
― Tacitus, Annals

The actions of the governing elite have provoked the darkening mood creeping across the land. The rise of the Tea Party in 2009 was fueled by anger over the bank bailouts, out of control federal spending and ever increasing taxes. The anger spilled over into town hall meetings, as Congressmen felt the wrath of public dissatisfaction. The fury propelled Tea Party Republicans to being elected in large numbers in 2010. But the movement was hijacked by the Republican establishment and defanged. As 2011 progressed, with Wall Street continuing to pillage the American middle class, the Occupy Movement spread to cities across America and around the world. The movement, led by Millenials, claims that mega-corporations and Wall Street manipulate the world in an unbalanced way that disproportionately benefits a super wealthy minority and is undermining democracy. They have shone a light upon the fact the 1% has used their wealth and power to plunder the national treasury, while impoverishing the 99%. The audacity of the 1% was on display for all to see when former Goldman Sachs CEO and former U.S. Senator Jon Corzine absconded with $1.2 billion of his customers’ money and continues to hide it in the vaults of his fellow robber baron Jamie Dimon at J.P. Morgan. To this day, no one has been jailed for this heist or any of the thousands of other crimes committed by the Wall Street titans. These psychopaths will not be satisfied until nothing remains of our country but a barren desert.

“They have plundered the world, stripping naked the land in their hunger… they are driven by greed, if their enemy be rich; by ambition, if poor… They ravage, they slaughter, they seize by false pretenses, and all of this they hail as the construction of empire. And when in their wake nothing remains but a desert, they call that peace.” – Tacitus, The Agricola and the Germania

A few weeks ago I watched The Grapes of Wrath movie for the first time in many years. The novel was written by John Steinbeck during the last Fourth Turning. It is as powerful today as it was in the 1941. It perfectly captures the mood of the country during the Great Depression. The message of the working class being exploited and manipulated by wealthy landowners resounds today. The Joads only sought an opportunity for a job, their own land, simple human dignity, and the chance for a better future. Wall Street has replaced the wealthy landowners as the exploiters of the working class. Steinbeck saw the Federal Government as a solution during the 1930s, but they are a major part of the problem today, as politicians have been captured by corporate and special interests. Their solutions do not benefit the average middle class American.

The feelings about our government and political system is reflected in Suzanne Collins’ Hunger Games novel, which captures the vein of government brutality, oppression of the working class, excessive wealth inequality, and the vapid shallowness of our American Idol culture. The Hunger Games was written in 2008 and the movie version has become a worldwide sensation. The immense divide between the wealthy ruling class, living an obscenely decadent lifestyle, and the exploited working class on the verge of starvation, is portrayed in a cruelly sadistic manner. The fact that it is appealing to Millenials and all generations says much about the changing of attitudes in the last four years. Hunger Games will be viewed as the modern day Grapes of Wrath by future generations.

There is no denying the darkening disposition of the country, except by those whose job it is to deny the reality of our deteriorating situation. Those whose power and wealth are dependent upon a citizenry being kept in the dark and convinced the way out of this mess is to resume spending borrowed money, have pulled out all the stops since the initial catalyst for this Fourth Turning struck with its full fury in 2008. The frantic efforts by those in power to prop up the status quo were predictable. If our leaders had dealt with the initial crisis in a realistic manner, many wealthy powerful men would have gone broke. They have been able to temporarily fend off a full-fledged catastrophe as predicted by Strauss & Howe:

“At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where, during the Unraveling, America will have neglected, denied, or delayed needed action. Anger at “mistakes we made” will translate into calls for action, regardless of the heightened public risk. It is unlikely that the catalyst will worsen into a full-fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while. Yet even if dire consequences are temporarily averted, America will have entered the Fourth Turning.”

But they have solved nothing. In fact, they have exacerbated the problem areas of debt, civic decay and global disorder with their “solutions”. Our leaders have added $5.6 trillion to the National Debt; the Federal Reserve tripled their balance sheet by taking on $2 trillion of Wall Street toxic debt; the Federal Government assumed trillions in new debt by taking over Fannie Mae, Freddie Mac and Sallie Mae; and real GDP went up by a mere $103 billion (.8%) between the 4^th quarter of 2007 and the 4^th quarter of 2011. Rescuing the 99% was never the focus of their solutions. It was to save the bankers and wealthy investors (1%) who took the world destroying risks and should have borne the losses of their risk taking. The oligarchs have been wildly successful in this effort. The stock market has doubled from its lows. Borrowing at 0% from the Federal Reserve has done wonders for banker bonuses. Global disorder increases by the day, as politicians and bankers force austerity on their citizens, while continuing to harvest billions in profits and bonuses still waging wars of choice, further enriching the peddlers of debt and the peddlers of death (military industrial complex).

The Great Depression lasted from 1929 until 1940. The GDP of the country actually grew by 80% between 1933 and 1940. The stock market soared by 100% from the 1932 low to its 1933 high. It then soared another 100% from 1934 through 1937. Despite these fabulous economic statistics and investment riches scooped up by the 2.5% of the population that owned stocks, they still call this time period the Great Depression. With unemployment ranging from 15% to 25% during this entire time frame, the common man suffered greatly. There was no recovery for the 99%.

The net worth of the 99% is highly dependent on the value of their homes and their ability to increase their annual wages. Home prices have fallen 34% from their peak and continue to fall, recently reaching 2002 levels. Real median weekly earnings are lower than they were in 2003 and have fallen 3% since the economy supposedly entered its recovery in December 2009. Gas prices have doubled since early 2009. The 1% rejoices as they treat oil as an investment in their diversified portfolio. The 99% suffer as the average household is spending $2,500 per year more to fill up their vehicles. Food prices are up 15% to 25% in the last three years, even using the manifestly manipulated BLS figures.

It is essential for those in power to utilize their mainstream media propaganda machines, massaging of economic information and Ben Bernanke’s printing press to give the appearance of recovery to the masses. In the last three months the hyperbole and extreme spin from the corporate mainstream media has become exceedingly robust. It smells of desperation. Even as the media touts a recovery and Obama peddles drivel about millions of new jobs, Bernanke keeps the throttle of quantitative easing and zero interest rates wide open. Their actions are not consistent with their rhetoric. People who had jobs as accountants making $55,000 per year in 2007 are now stocking fertilizer in the garden center at Lowes making $20,000, with no benefits. This is the face of the jobs recovery. Only a corporate media doing the bidding of their masters could possibly rejoice at the February data showing consumers spending at a rate 450% higher than their income gains as a sign of recovery. There is a concerted effort to revive the auto market by the Federal Government (Ally Financial) and the Wall Street banks by employing exceptionally loose credit standards for auto loans and leases that are reminiscent of the subprime mortgage debacle. I’m sure it will turn out better this time. The downward spiral of trust is accelerating as predicted by Strauss & Howe:

“As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

The downward spiral of societal trust is well founded. The monied interests have captured the political process. The regulated have captured the regulators. Wall Street has always controlled the Federal Reserve. Corporations and the wealthiest among us select the politicians that will best serve their interests. The governing elite of psychopathic bankers, corrupt politicians, and powerful mega-corporations create crises, then save us from the crises they created, while accumulating more control, wealth and power. This perpetual swindle has been going on for decades and has reached its zenith as it did during the last Fourth Turning. Income inequality has reached the extreme levels last seen in the 1930s. The capitalism storyline has grown old and tired. Complete systematic capture is the reason for those at the top reaping all the benefits of our dysfunctional economic system.

The rampant mortgage fraud, the robo-signing crimes, trillions of shadowy derivatives, unfunded government pensions, unfunded Medicare and Social Security promises, and the bald-faced looting of customer accounts at MF Global have brought about a realization among those capable of critical thought that this Crisis is growing worse by the day. Strauss & Howe clearly understood the factors that would lead to this deficit of trust:

“But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

Here we stand, three and a half years since the catalyst of this Crisis. What event or events will produce the regeneracy stage of this Fourth Turning and when can we expect its arrival? I’ll try to make some educated guesses in Part Three of this series.

Click here to read: PART ONE

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2011 – CATCH-22 YEAR IN REVIEW

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

I published my predictions for 2011 on January 3, 2011 in my article 2011 – The Year of Catch-22. Humans evidently enjoy being embarrassed by how pitiful they are at predicting the future, because we continue to do it year after year. The mainstream media pundits don’t dare look back at their predictions or the predictions of the Wall Street shills that parade on CNBC and get quoted in the Wall Street Journal, eternally predicting 10% to 15% stock market gains. The multi-millionaire Wall Street strategists like the spawn of the squid, Abbey Joseph Cohen, have used all of their Ivy League brain power to predict at least a 10% stock price gain every year since 1999. The S&P 500 stood at 1,272 on January 6, 1999. As of this writing it currently stands at 1,261. ZERO appreciation over the last twelve years.

The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500.

The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.

I will take my chances with a few predictions for 2012 after reviewing my lack of foresight regarding 2011. I declared 2011 the year of Catch-22 because no matter what happened, it would not translate into a positive result for the American people. This was my thesis:

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.

My predictions for 2011 were as follows:

The first half of 2011 is guaranteed to give the appearance of recovery. The lame-duck Congress ”compromise” will pump hundreds of billions of borrowed dollars into the economy. The continuation of unemployment benefits for 99 weeks (supposedly to help employment) and the 2% payroll tax cut will goose consumer spending. Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%. Despite the fact that there are 362,000 less Americans employed than were employed in August 2010, the mainstream media will continue to tout the jobs recovery. The goal of all these efforts is to boost confidence and spending. Everything being done by those in power has the seeds of its own destruction built in. The Catch 22 will assert itself in the 2nd half of 2011.

The payroll tax cut, extension of unemployment benefits and Bernanke’s gift to Wall Street criminal banks did nothing to help real Americans in the real world. The government manipulated GDP has languished between 0.4% and 1.8% in the first three quarters of 2011. Using a true measure of inflation, as detailed by John Williams at www.shadowstats.com, GDP has remained at a recessionary level of -2% to -3%.

Easy Ben accomplished his goal of pumping up the stock market with his QE2 gift to Wall Street bankers during the first six months of 2011, with the S&P 500 peaking at 1,364 in late April. The market began to fall the second Ben stopped handing Jamie Dimon and his friends $4 billion per day, with the market dropping 18% in three months. The market has risen back near the breakeven level for the year based on Ben’s promise to keep interest rates at zero forever and the hope of QE3.

A new perfect storm is brewing for housing in 2011 and will not subside until late 2012. You may have thought those bad mortgages had been all written off. You would be wrong. There will be in excess of $200 billion of adjustable rate mortgages that reset between 2011 and 2012, with in excess of $125 billion being the dreaded Alt-A mortgages. This is a recipe for millions of new foreclosures.

The brainless twits on CNBC will dutifully report the number of completed foreclosure sales plunged by 24% in 2011, giving the impression to their non-critical thinking viewership that all is well on the housing front. What they will fail to point out is that the number of foreclosures in process went up in 2011 and now stands 59% ABOVE the level in 2009 at the height of our recession. The reason that completed foreclosures have fallen is twofold. The criminal Wall Street banks can’t prove they hold the mortgage notes on hundreds of thousands of homes and they have a few legal issues related to the massive robo-signing fraud they committed. Kicking old ladies and Iraq War veterans out into the street using fraudulent documentation has caused the Wall Street Too Evil To Believe Banks some public relations issues. Secondly, the Wall Street Plutocrats have these mortgage loans valued at 100% on their balance sheets due to the FASB gift of mark to fantasy accounting rules. Foreclosing actually reveals their assets to be overvalued by at least 50%. This may explain why millions of Americans are still in their homes after not making a mortgage payment for two years, as detailed by economist Tom Lawler:

Given the number of loans either seriously delinquent or in the process of foreclosure at the beginning of the year, the number of completed foreclosure sales in 2011 is almost absurdly low, reflecting the complete screw-up of the mortgage servicing industry, and the resulting dramatic slowdown in foreclosure resolutions. As of the end of October, 2011 LPS estimated that there were 1.759 million seriously delinquent loans with the average number of days delinquent at 388 (compared to 192 days in January 2008), and there were 2.210 million loans in the foreclosure process that had been on average delinquent for 631 days.

Completed Foreclosure Sales And Short Sales/DILs (thousands, estimates)
	2008	2009	2010	2011(E)
Completed Foreclosure Sales	914	949	1,070	815
Owner-occupied	N.A.	N.A.	785	608
Non-owner-occupied	N.A.	N.A.	285	207
Short Sales/DILs	105	270	354	380
Foreclosures plus Short Sales/DILs	1,019	1,219	1,424	1,195
Outstanding first liens:	Jan-08	Jan-09	Jan-10	Jan-11
Seriously Delinquent (90+)	1,016	1,983	3,061	2,168
In Process of Foreclosure	860	1,386	2,110	2,203

The concerted effort to not complete foreclosures did nothing to slow the continued descent in home prices. As you can see in the chart below from http://www.calculatedriskblog.com/, real home prices will have fallen another 5% in 2011. Obama and his minions threw $50 billion of your tax dollars at the housing market in 2009 – 2010 with tax credits, loan modification programs, homebuilder tax loss carry-backs, and a myriad of other Keynesian claptrap solutions. They succeeded in pissing your tax dollars down the toilet as prices have declined another 12% in the last 18 months. Prices have fallen 42% nationally since 2006. I wonder who missed the boat on that development?

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.” – Ben Bernanke – July 2005

There are approximately 48.5 million homes with mortgages in the United States and 10.7 million of them have negative equity. Another 2.4 million have less than 5% equity. Considering it costs more than 5% in closing costs to sell a house that means 27% of home occupiers with a mortgage are trapped like rats in a cage. With 2.2 million foreclosures still in the pipeline and a looming recession, home prices will continue to fall another 10% to 20% over the next two years and one third of all home occupiers will be underwater. That sounds like a recipe for 10% to 15% stock market gains.

Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.

Bennie and his Inkjets did a bang up job in 2011. He was able to expand his balance sheet from $2.47 trillion to $2.95 trillion in twelve short months. According to Ben and his Federal Reserve friends, increasing your balance sheet by $480 billion isn’t really printing money out of thin air and handing it to their Wall Street owners for free, so they can prop up the stock market and enrich their executives. Ben is now leveraged 57 to 1. He should move to Europe, where this level of leverage is commonplace. In comparison, Lehman Brothers and Bear Stearns were leveraged 40 to 1 when they went belly up.

There is absolutely no way that Ben Bernanke could ever reduce the Federal Reserve balance sheet to the pre-crisis level without destroying the U.S. economy. He knows that and will never sell off those toxic mortgage assets. Not only won’t he reduce the Fed balance sheet, but by mid-2012 he will institute QE3 and buy another $600 billion of mortgage debt. His hubris knows no bounds, as his reckless illegal actions thus far have not driven interest rates sky high – YET. He has only destroyed the finances of senior citizens, savers and people who eat food and use gasoline. He will surely go down in history, but not the way he envisions.

The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession.

As Bernanke printed like a drunken sailor during the first six months of 2011, the USD fell by 9% and the price of oil did exactly as expected, rising to a peak above $125. The NATO “intervention” in Libya also added a few bucks to the price of a barrel of sweet crude.

DXY

The complete implosion of Europe and the ensuing weakness of the Euro have given the false impression that the U.S. dollar is a safe haven. The USD has regained its losses and will end the year exactly as it started versus a Euro heavy basket of world currencies. With annual deficits equaling 10% of GDP, a national debt now exceeding 100% of GDP, and Ben Bernanke in perpetual printing mode, the USD is destined to reach its intrinsic value of zero. With Brent crude still above $108 a barrel, employment still weak, and double digit food and energy inflation slowing consumer spending, the ECRI knows a recession during 2012 is baked in the cake.

The imminent collapse of the European Union as Greece, Ireland, Portugal and Spain are effectively bankrupt. Spain is the size of the other three countries combined and has a 20% unemployment rate. The Germans are losing patience with these spendthrift countries. Debt does matter.

It seems I was wrong about Europe. It turned out to be much worse than anyone envisioned, with Italy now the likely fuse that blows the whole thing sky high. The ECB has made Ben Bernanke look like a lightweight by increasing their balance sheet by 44% to over $3.5 trillion in a futile effort to solve a debt crisis with more debt. It seems central bankers are programmed to print until the very end (see Weimar). The European Union will not survive 2012. Too many countries, too much government debt, too many zombie banks, too many bureaucrats, too much austerity rammed down the throats of citizens, and not enough honesty or reality based solutions.

State and local governments were able to put off hard choices for another year, as Washington DC handed out hundreds of billions in pork. California will have a $19 billion budget deficit; Illinois will have a $17 billion budget deficit; New Jersey will have a $10.5 billion budget deficit; New York will have a $9 billion budget deficit. A US Congress filled with Tea Party newcomers will refuse to bailout these spendthrift states. Substantial government employee layoffs are a lock.

State and local governments have laid off 535,000 workers since 2008. With borrowed Federal government stimulus handouts evaporating into thin air during 2011 – 2012, this total will reach 800,000 by the end of the next year. The U.S. Postal Service will do their part by cutting 28,000 jobs in 2012, even though they need to cut 100,000. States and municipalities based their budgets on the revenues produced by the fake debt driven housing boom from 2003 – 2007. The tax revenue dried up, but the union jobs added are a gift that keeps on costing taxpayers billions. States and localities can’t print, so layoffs will continue.

There is a growing probability that China will experience a hard landing as their own quantitative easing has resulted in inflation surging to a 28 month high of 5.1%, with food inflation skyrocketing to 11.7%. Poor families spend up to half of their income on food. Rapidly rising prices severely burden poor people and can spark civil unrest if too many of them can’t afford food.

According to official government statistics China’s economy continued to boom in 2011. But, of course Chinese government reports make the BLS look honest. The fact is the Chinese stock market has fallen 28% since April as the property bubble deflates. If their economy has truly grown at an annual rate of 8% to 10% over the last five years, why is their stock market down 62% from its 2007 high?

SHANGHAI INDEX

The price inflation in food and energy prices, along with the property bubble bursting has led to breakouts of civil unrest across China. China’s two biggest markets – Europe & the United States – are in or near recession and are buying less of their crap. They can only build so many vacant cities and shopping malls to create the appearance of growth. The hard landing is about to get harder in 2012.

The Tea Party members of Congress are likely to cause as much trouble for Republicans as Democrats. If they decide to make a stand on raising the debt ceiling early in 2011, all hell could break loose in the debt and stock markets.

It seems I got the timing wrong on this prediction, but the August showdown was a doozy. The threat of a government shutdown resulted in the stock market collapsing by 18% in a matter of weeks in August. Our beloved politicians then came up with another bullshit non-solution by creating a commission which, after months of negotiations, failed to do anything. The $1.2 trillion of automatic spending cuts will never happen. The slime that inhabit the hallowed halls of Congress will pretend to cut, while actually increasing spending. And so it goes. The stock market has risen from its October low based on Easy Ben’s assurances to keep interest rates at zero forever and the anticipation of QE3 in the new year.

Will the consensus forecast of a growing economy, rising corporate profits, 10% to 15% stock market gains, 2 million new jobs, and a housing recovery come true in 2011? No it will not. By mid-year confidence in Ben’s master plan will wane.

Corporate profits did rise, mostly due to Ben Bernanke providing free money to the Wall Street Mega-Banks so they could generate risk free profits on the backs of senior citizens getting .15% on their savings. It also helps when the same Wall Street banks can make accounting entries declaring that future loan losses will be minimal and the toxic mortgages on their books aren’t really worthless. Who knew accountants could do so much for America? Abbey Joseph Cohen only missed her stock market projection by a smidgeon. The S&P 500 is essentially unchanged for the year, while the NASDAQ and Russell 2000 will finish in the red.

The country did not add 2 million new jobs. It added 1.4 to 1.5 new jobs. Too bad the working age population went up by 1.7 million people. But our friends at the BLS, when they aren’t manipulating away the inflation that real people in the real world experience every day, have the gall to declare the unemployment rate has fallen from 9.8% to 8.6% in the last twelve months. How could this be you might ask, since the working age population went up by more than the number of people who found jobs. Easy if you are a BLS government drone. Everyone knows that things are so good out in the real world that 1.8 million Americans decided to kick back and enjoy the good life by leaving the workforce. It wasn’t because they gave up looking for the jobs that were shipped to the Far East by the mega-corporations making record profits and paying record bonuses to their executives. It’s just a rumor that those long lines at food banks around the country have a few of these “lucky” non-members of the workforce in them.

The housing recovery is just around the corner. Larry Yun, chief liar for the National Association of Realtors, assures us that it’s the best time to buy. We all know that the NAR is a bastion of honesty and truth. Just because they reported 3 MILLION more home sales than actually occurred between 2007 and 2010, you can’t scorn, ignore and treat everything they say as a bald faced lie. If Larry says the housing recovery has arrived, it must be true.

	Revised	Previous	% Change
2007	5,022,000	5,652,000	-11.1%
2008	4,124,000	4,913,000	-16.1%
2009	4,334,000	5,156,000	-15.9%
2010	4,182,000	4,907,000	-14.8%

When the pundits on CNBC sum up the year, they will not be touting the fact that gasoline prices went up 10% in the past year and the average price for a gallon of gas was the highest in U.S. history. They will not be proclaiming that even the government manipulated CPI shows food prices up 6% and clothing prices up 5% in the last year. I’m sure glad Ben Bernanke doesn’t see any inflation on his radar. Maybe he should ask his chauffer about his inflation. Lastly, the stocks for the long run crowd will not be yakking about the fact that gold finished up 10% for the year and has been up for TEN consecutive years. I wonder whether the numbskulls on CNBC can look at the chart below and figure out why gold is up ten years in a row. The national debt reaching $20 trillion by 2015 is a given. I wonder whether the price of gold will be higher. Maybe I’ll give Abbey Joseph Cohen a call and ask for her prediction.

Overall, my assessment of what would happen in 2011 wasn’t too far off. But, it was the things that I and virtually everyone on the planet missed that will reverberate in 2012 and for the next ten years. Our 20 year Crisis deepened, became more violent, and clearly revealed that the establishment will use all their power to put down protests and crush opposition to their corrupt crony capitalistic policies. The major developments I missed regarding 2011 included:

The self-immolation of a young Tunisian man set off revolutions around the globe, toppling U.S. supported dictators in Tunisia and Egypt. Dictators attempted to retain power by killing citizens by the thousands. The self-immolation of a man in New Hampshire in front of a courthouse was completely ignored by the mainstream media. I wonder why.
The Arab Spring has resulted in revolutions in Yemen, Bahrain, Syria and Libya. Depending upon how much oil was at stake, the U.S. has supported the dictator or the people whenever it suited them. This is called democratic principles.
Young people across the U.S. were inspired by the Arab Spring and began to Occupy Wall Street and many other streets in 97 other U.S. cities this past Fall. The spirit of these protests was against Wall Street criminality, Washington corruption, and corporate malfeasance. Peaceful civil disobedience by citizens of this country was met with beatings, tear gas, mass arrests and bulldozing their encampments. Students were maced while sitting in front of a college building. Ultimately a Department of Homeland Security coordinated attack on all the protests squashed the movement. The American people were too distracted by Dancing With the Stars and the latest iGadget to notice. The corporate media did their part by spewing misinformation and propaganda about the Occupy Movement, while the Wall Street Elite giggled with delight from their NYC penthouse suites.
Shockingly, no bankers were prosecuted despite clear unequivocal evidence of the greatest financial fraud in world history. The former head of Goldman Sachs, U.S. Senator, and NJ Governor continues to eat caviar and drink champagne in his glorious mansion after stealing $1.2 billion directly from customers’ accounts. These funds now reside in the pocket of Jamie Dimon and his upstanding JP Morgan institution.
The Federal government methodically moved closer to a totalitarian regime by passing legislation that will enable them to imprison U.S. citizens without charges. The only remaining area that has allowed critical thinking Americans to find the truth – the Internet – is on the verge of being locked down by the Feds. Pending legislation will allow them to shut down any website that may inconvenience their agenda. We inch ever closer to Orwell’s vision of the future.
No one in the MSM or government anticipated that the only truthful, honest, forthright politician in Washington D.C. – Ron Paul – could possibly win the Iowa caucus. His message of freedom, liberty, self reliance, and non-interventionism has struck a chord with young people and those capable of distinguishing between MSM propaganda and reality. The establishment is terrified of Ron Paul and is now on a mission to destroy him. What they don’t realize is their time is coming to an end. The existing social order will be swept away in a violent manner. The youth of this country will lead the charge. 2012 should be a real doozy.

I’ll take another shot at predicting the unpredictable with my next article: 2012 – The Year of Living Dangerously.

WHERE’S OUR OIL PRICE COLLAPSE?

Make no mistake about it, without plentiful, cheap, and easy to access oil, the United States of America would descend into chaos and collapse. The fantasies painted by “green” energy dreamers only serve to divert the attention of the non critical thinking masses from the fact our sprawling suburban hyper technological society would come to a grinding halt in a matter of days without the 18 to 19 million barrels per day needed to run this ridiculous reality show. Delusional Americans think the steaks, hot dogs and pomegranates in their grocery stores magically appear on the shelves, the thirty electronic gadgets that rule their lives are created out of thin air by elves and the gasoline they pump into their mammoth SUVs is their God given right. The situation was already critical in 2005 when the Hirsch Report concluded:

“The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

In the six years since this report there has been unprecedented oil price volatility as the world has reached the undulating plateau of peak cheap oil. The viable mitigation options on the demand and supply side were not pursued. The head in the sand hope for the best option was chosen. The government mandated options, ethanol and solar, have been absolute and utter disasters as billions of taxpayer dollars have been squandered and company after company goes bankrupt. The added benefit has been sky high corn prices, dwindling supplies and revolutions around the world due to soaring food prices. The last time the country went into recession in 2008, the price of oil plunged from $140 a barrel to $30 a barrel in the space of six months. I’d classify that as volatility. We’ve clearly entered a second recession in the last six months. So we should be getting the benefit of collapsing oil prices.

But, a funny thing happened on the way to another oil price collapse. It didn’t happen. WTI Crude is trading for $87 a barrel, up 23% since January 1. Unleaded gas prices are up 54% in the last year and 43% since January 1. Worldwide oil pricing is not based on WTI crude but Brent crude, selling for $113 per barrel, only down 10% from its April high of $125. The U.S. and Europe consume 40% of all the oil in the world on a daily basis. Multiple European countries have been in recession for the last nine months. The U.S. economy has been in free fall for six months.

Some short term factors will continue to support higher oil prices. The Chinese continue to fill their strategic petroleum reserve, Japan is still relying on diesel generators for electricity post-tsunami, and the Middle East is developing a love affair with the air conditioner. But, it’s the long term factors that will lead to much higher oil prices for myopic oblivious Americans.

John Hussman describes the situation on the ground today based upon six economic conditions presently in effect:

There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions).

With 40% of the world in or near recession, how come oil prices are still so high and much higher than last year, when the economies in Europe and the U.S. were expanding? The number of vehicle miles driven in the U.S. is still below the level reached 43 months ago and at the same level as early 2005. The price of a barrel of oil in early 2005 was $42. The U.S. is using the same amount of oil, but the price is up 112%. It seems the U.S. isn’t calling the shots when it comes to the worldwide supply/demand equation.

It would probably be a surprise to most people that U.S. oil consumption today is at the same level it was in 1997 and is 10% lower than the peak reached in 2005. This is not a reflection of increased efficiency or Americans gravitating towards smaller vehicles with better mileage. Americans are still addicted to their SUVs and gas guzzling luxury automobiles. It’s a reflection of a U.S. economy that has been in a downward spiral since 2005.

1996	18,476.15	3.89 %
1997	18,774.07	1.61 %
1998	18,946.01	0.92 %
1999	19,603.83	3.47 %
2000	19,717.92	0.58 %
2001	19,772.60	0.28 %
2002	19,834.31	0.31 %
2003	20,144.82	1.57 %
2004	20,833.01	3.42 %
2005	20,924.36	0.44 %
2006	20,803.93	-0.58 %
2007	20,818.37	0.07 %
2008	19,563.33	-6.03 %
2009	18,810.01	-3.85 %

If the U.S. isn’t driving oil demand in the world, then why are prices going up? There are three main factors:

Dramatic increase in demand from China and other developing countries.
A plunging U.S. Dollar
Peak oil has arrived

Surging Developing World Demand

The Energy Information Administration issued their latest forecast and it does not bode well for lower prices:

Despite continued concerns over the pace of the global economic recovery, particularly in developed countries, the US Energy Information Administration expects worldwide oil consumption to increase this year and next spurred by demand in developing countries. US oil consumption, however, is forecast to contract from a year ago. Worldwide oil demand, led by China, will increase by 1.4 million b/d in 2011 to average 88.19 million b/d and by 1.6 million b/d in 2012, outpacing average global demand growth of 1.3 million b/d from 1998-2007, before the onset of the global economic downturn.

China is now consuming over 9 million barrels per day. This is up from an average of 7 million barrels per day in 2006. Platts, a global energy analyst, put China’s 2010 figures at 8.5 million barrels per day, up 11.43% from the previous year. The forecast for China’s crude throughput in 2011 is an average of 9.24 million barrels per day up 8.5% from 2010. In the first seven months of this year, total crude throughput stood at average of 8.95 million barrels per day.

Standard Chartered Bank predicts that, by the year 2020, China will overtake all of Europe as the second largest consumer of oil in the world, and should catch up to the U.S. by the year 2030 as China’s demand continues to rise while U.S. demand is expected to be flat. Chinese crude imports grew 17.5% in 2010 to 4.79 million barrels per day. China is importing 55% of its oil today versus 40% in 2004.

China’s oil consumption per capita has increased over 350% since the early 1980s to an estimated 2.7 barrels per year in 2011. Consumption per capita has risen nearly 100% in just the past decade. Oil consumption per capita in the U.S. currently ranks among the top industrialized nations in the world at 25 barrels per year. However, today’s consumption levels are approximately 20% lower than they were in 1979. The chart below paints a picture of woe for the United States and the world. China overtook the United States in auto sales in 2009. They now sell approximately 15 million new vehicles per year. India sells approximately 2 million new vehicles per year. The U.S. sells just over 12 million new vehicles per year. In China and India there are approximately 6 car owners per 100 people. In the U.S. there are 85 car owners per 100 people.

They call China, India and the rest of the developing world – Developing – because they will be rapidly expanding their consumption of goods, services and food. There will certainly be bumps along the way, as China is experiencing now, but the consumption of oil by the developing world will plow relentlessly higher. China isn’t the only emerging country to show big increases in per capita consumption. The growth in consumption for several other countries far outpaces China. Consumption per capita in Malaysia has nearly quadrupled since the mid-1960s. Consumption in Thailand and Brazil has more than doubled to roughly 5.7 barrels and 4.8 barrels per year, respectively.

Developed countries, especially those in Western Europe, have experienced substantial declines in oil consumption. Today’s per capita consumption in Sweden is roughly 12 barrels per year, down from 25 barrels per year in the mid-1970s. France, Japan, Norway and U.K. all use less oil on a per capita basis than they did in the 1970s. These countries have been able to drive down the consumption of oil by taxing gasoline at an excessive level.

Americans pay 43 cents in taxes out of the $3.70 they pay at the pump for a gallon of gasoline. A driver in the UK is paying $4 per gallon in taxes out of the $9 per gallon cost. Gasoline costs between $8 and $9 per gallon across Europe today. The extreme level of gas taxes certainly reduces car sizes, consumption and traffic. Too bad the mad socialists across Europe spent the taxes on expanding their welfare states and promising even more to their populations. Maybe a $6 per gallon tax will do the trick. Forcing Americans to drive less by doubling the gas tax is a quaint idea, but it is too late in the game. Europe is still made up of small towns and cities with the populations still fairly consolidated. Biking, walking and small rail travel is easy and feasible. The sprawling suburban enclaves that proliferate across the American countryside, dotted by thousands of malls and McMansion communities, accessible only by automobiles, make it impossible to implement a rational energy efficient model for moving forward. We cannot reverse 60 years of irrationality. Even without higher gas taxes, the price of gasoline will move relentlessly higher due to the stealth tax of currency debasement.

A Plunging US Dollar

The US dollar has fallen 15% versus a basket of worldwide currencies (DXY) since February 2009. This is amazing considering that 57% of the index weighting is the Euro. If you haven’t noticed, Europe is a basket case on the verge of economic disintegration. The US imports a net 9.4 million barrels of oil per day, or 49% of our daily consumption. Our largest suppliers are:

Canada – 2.6 million barrels per day
Mexico – 1.3 million barrels per day
Saudi Arabia – 1.1 million barrels per day
Nigeria – 1.0 million barrels per day
Venezuela – 1.0 million barrels per day
Russia – 600,000 barrels per day
Algeria – 500,000 barrels per day
Iraq – 400,000 barrels per day

These eight countries account for over 70% of our daily oil imports. You hear the “experts” on CNBC declare that our oil supply situation is secure because close to 60% of our daily usage is sourced from North America. The presumption is that Canada and Mexico are somehow under our control. There is one problem with this storyline. US oil production peaked in 1971 and relentlessly declines as M. King Hubbert predicted it would. Mexico will cease to be a supplier to the U.S. by 2015 as their Cantarell oil field is in collapse. Most of the oil supplied from Canada is from their tar sands. Expansion of these fields is difficult as it takes tremendous amounts of natural gas and water to extract the oil.

The rest of the countries on the list dislike us, hate us, or are in constant danger of implosion. When the Neo-Cons on Fox News try to convince you that Iraq has been a huge success and certainly worth the $3 trillion of national wealth expended, along with 4,500 dead and 32,000 wounded soldiers, you might want to keep in mind that Iraq was exporting 795,000 barrels of oil per day to the U.S. in 2001 when the evil dictator was in charge. Today, we are getting 415,000 barrels per day. Dick Cheney was never good at long term strategic planning.

We better plant more corn, as our supply situation is far from stable. Maybe we can install solar panels from Obama’s Solyndra factory on the roofs of the 65 Chevy Volts that were sold in the U.S. this year, to alleviate our oil supply problem. The reliability and stability of our oil supply takes second place to the price increases caused by Ben Bernanke and his printing press. The average American housewife driving her 1.5 children in her enormous two and a half ton Chevy Tahoe or gigantic Toyota Sequoia two miles to baseball practice doesn’t comprehend why it is costing her $100 to fill the 26 gallon tank. If she listens to the brain dead mainstream media pundits, she’ll conclude that Big Oil is to blame. The real reason is Big Finance in conspiracy with Big Government.

Ben Bernanke is responsible for Americans paying $4 a gallon for gasoline. Zero interest rates, printing money out of thin air to buy $2 trillion of mortgage and Treasury bonds, and propping up insolvent criminal banks across the globe have one purpose – to deflate the value of the U.S. dollar. The rulers of the American Empire realize they can never repay the debts they have accumulated. They have chosen to default through debasement. It’s an insidious and immoral method of defaulting on your obligations. Let’s look at from the perspective of our two biggest oil suppliers.

A barrel of oil cost $40 a barrel in early 2009. The U.S. dollar has declined 30% versus the Canadian dollar since early 2009. The U.S. dollar has shockingly declined 20% versus the Mexican Peso since early 2009. How could the mighty USD decline 20% against the currency of a 3rd world country on the verge of being a failed state? Ask Ben Bernanke. Our lenders can’t do much about the continuing debasement of our currency, but our oil suppliers can. They will raise the price of oil in proportion to our currency devaluation. Since Bernanke’s only solution is continuous debasement, the price of oil will relentlessly rise.

Peak Oil Has Arrived

“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. At present, investment in oil production is only beginning to pick up, with the result that production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity.” – 2010 Joint Operating Environment Report

We’ve arrived at the point where demand has begun to outpace supply and even the onset of another worldwide recession will not assuage this fact. World oil supply has peaked just below 89 million barrels per day. Supply has since fallen to 87.5 million barrels per day, as Libyan supply was completely removed from world markets. The International Energy Agency is already forecasting worldwide demand to reach 90 million barrels per day in the second half of 2011 and reach 92 million barrels per day in 2012. The IEA warns that “just at the time when demand is expected to recover, physical limits on production capacity could lead to another wave of price increases, in a cyclical pattern that is not new to the world oil market.”

The world is trapped in an inescapable conundrum. As supply dwindles, prices increase, causing global economies to contract, and temporarily causing a drop in prices, except the lows are higher each time. The drill, drill, drill ideologues do nothing but confuse and mislead the easily led masses. We have 2% of the world’s oil reserves and consume more than 20% of the daily output. We consume 7 billion barrels of oil per year.

Drilling for oil in the Arctic National Wildlife Refuge in Alaska and areas formerly off limits in the Outer Continental Shelf will not close the supply gap. The amount of recoverable oil in the Arctic coastal plain is estimated to be between 5.7 billion and 16 billion barrels. This could supply as little as a year’s worth of oil. And it will take 10 years to produce any oil from this supply. The OCS has only slightly more recoverable oil at an estimated 18 billion barrels and the BP Gulf Oil disaster showed how easy this oil is to access safely. The new over hyped energy savior is shale gas. The cheerleaders in the natural gas industry claim that we have four Saudi Arabias worth of natural gas in the U.S. This is nothing but PR talking points to convince the masses that we can easily adapt. The amount of shale gas that can be economically produced is far less than the amounts being touted by the industry. The wells deplete rapidly and the environmental damage has been well documented. And last but certainly not least, we have the abiotic oil believers that convince themselves the wells will refill despite the fact that there is not one instance of an oil well refilling once it is depleted.

I wrote an article called Peak Denial About Peak Oil exactly one year ago when gas was selling for $2.60 a gallon. I railed at the short sightedness of politicians and citizens alike for ignoring a calamitous crisis that was directly before their eyes. Just like our accumulation of $4 billion per day in debt, peak oil is simply a matter of math. We cannot take on ever increasing amounts of debt in order to live above our means without collapsing our economic system. We cannot expect to run our energy intensive world with a depleting energy source. There is no amount of spin and PR that can change the math. Un-payable levels of debt and dwindling supplies of oil will merge into a perfect storm over the next ten years to permanently change our world. The change will be traumatic, horrible, bloody and a complete surprise to the non-critical thinking public.

“In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.” – Dr. James Schlesinger – former US Energy Secretary, 16th November 2005

We were warned. We failed to heed the warnings. If we had begun making the dramatic changes to our society 5 to 10 years ago, we may have been able to partially alleviate the pain and suffering ahead. Instead we spent our national treasure fighting Wars on Terror and bailing out criminal bankers. Converting truck and bus fleets to natural gas; expanding the use of safe nuclear power; utilizing wind, geothermal, and solar where economically feasible; buying more fuel efficient vehicles; and creating more localized communities supported by light rail with easy access to bike and walking options, would have allowed a more gradual shift to a less energy intensive society.

We’ve done nothing to prepare for the onset of peak oil. Until this foreseeable crisis hits with its full force like a Category 5 hurricane, Americans will continue to fill up their M1 tank sized, leased SUVs, tweet about Lady Gaga’s latest stunt, and tune in to this week’s episode of Jersey Shore. Meanwhile, economic stagnation, catastrophe and wars for oil are darkening the skies on our horizon.

“Dependence on imported oil, particularly from the Middle East, has become the elephant in the foreign policy living room, an overriding strategic consideration composed of a multitude of issues. …. Taken in whole, the National Energy Policy does not offer a compelling solution to the growing danger of foreign oil dependence. … Future military efforts to secure the oil supply pose tremendous challenges due to the number of potential crisis areas. ….. Economic stagnation or catastrophe lurk close at hand, to be triggered by another embargo, collapse of the Saudi monarchy, or civil disorder in any of a dozen nations.”– America’s Strategic Imperative A “Manhattan Project” for Energy

PEAK OIL – THE LONG & THE SHORT

Does it seem like we’ve been here before?

A barrel of Brent Crude (the truest indicator of worldwide oil scarcity) sits at $118, up from $75 per barrel in July 2010 – a 57% increase in eleven months. In the U.S., the average price of gasoline is $3.69 per gallon this week, up 37% in the last year and up 100% in the last 30 months.

The pundits and politicians are responding predictably. They blame the Libyan revolution, the dreaded speculators and that old fallback – Big Oil. When the Middle East turmoil began in earnest in January, gas prices had already risen 15% in three months, spurred by increased worldwide demand and by Ben Bernanke’s printing press. Congressmen have reacted in their usual kneejerk politically motivated fashion by demanding that supplies be released from the Strategic Oil Reserve.

Congress has a little trouble with the concept of “strategic.” They also have difficulty dealing with a reality that has been staring them in the face for decades. Politicians will always disregard prudent, long-term planning for vote-generating talk and gestures.

The Long Term

Peak oil has been a mathematically predictable occurrence since American geophysicist M. King Hubbert figured out the process in 1956. His model predicted that oil production in the United States would peak in 1970. He wasn’t far off. In 1971, when the U.S. was producing 88% of its oil needs, domestic production approached 10 million barrels per day and has been in decline ever since.

(Source: http://www.eia.doe.gov/energy_in_brief/images/charts/
Consumption_production_import_trends-large.gif)

The Department of Energy was established in 1977 with a mandate to lessen our dependence on foreign oil. At the time, the U.S. was importing 6.5 million barrels per day. In 1985 the country was still able to produce enough to cover 75% of its needs. Today, 34 years later, the U.S. imports 10 million barrels per day, almost half of what it uses.

President Obama’s 2011 Budget proposal included priorities for the DOE:

Positions the United States to be the global leader in the new energy economy by developing new ways to produce and use clean and renewable energy.
Expands the use of clean, renewable energy sources such as solar, wind and geothermal while supporting the Administration’s goal to develop a smart, strong and secure electricity grid.
Promotes innovation in the renewable energy sectors through the use of expanded loan guarantee authority.

That’s what goes on in talk space.

Back on planet Earth, not a single U.S. oil refinery or nuclear power plant has been built since 1977. Decades of inaction and denial have left our energy infrastructure obsolescent and decaying. Pipelines, tanks, drilling rigs, refineries and tankers have passed their original design lives. The oil industry is manned by an aging workforce of geologists, engineers and refinery hands. Many are nearing retirement, and there are few skilled personnel to replace them.

Denial of peak oil becomes more dangerous by the day. The Obama administration prattles about clean energy, solar, wind and ethanol, when petroleum powers 96% of the transportation sector and 44% of the industrial sector. Coal provides 51% of the country’s electricity, and nuclear accounts for another 21%. Renewable energy contributes only 6.7% of the country’s energy needs, mostly from hydroelectric facilities.

Ethanol works nicely as a slogan but poorly as a solution. The ethanol boondoggle diverts 40% of the U.S. corn crop to fuel production. The real cost to produce a gallon of ethanol (tariffs, lost energy, higher food costs) exceeds $7 and has contributed to the price of corn rising 112% in the last year. The 107 million tons of grain that went to U.S. ethanol distilleries in 2009 would have been enough to feed 330 million people for one year.

(Source: http://perotcharts.com/category/challenges/energy/)

The most worrisome aspect of peak oil is that our government leaders have known of it and have chosen to do nothing. The Department of Energy requested a report from widely respected energy expert Robert Hirsch in 2005. The report clearly laid out the dire situation:

The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.

Some of his conclusions:

World oil peaking is going to happen, and will likely be abrupt. World production of conventional oil will reach a maximum and decline thereafter.
Oil peaking will adversely affect global economies, particularly the U.S. Over the past century, the U.S. economy has been shaped by the availability of low-cost oil. The economic loss to the United States could be measured on a trillion-dollar scale.
The problem is liquid fuels for transportation. The lifetimes of transportation equipment are measured in decades. Rapid changeover in transportation equipment is inherently impossible. Motor vehicles, aircraft, trains and ships have no ready alternative to liquid fuels.
Mitigation efforts will require substantial time. Waiting until production peaks would leave the world with a liquid fuel deficit for 20 years. Initiating a crash program 10 years before peaking leaves a liquid fuels shortfall of a decade. Initiating a crash program 20 years before peaking could avoid a world liquid fuels shortfall.

World liquid oil production has never exceeded the level reached in 2005. It becomes more evident by the day that worldwide production has peaked. Robert Hirsch was correct. The world will have a liquid fuel deficit for decades.

The Short Term

The International Energy Agency has been increasing its estimates for world oil consumption to over 90 million barrels per day by the 4th quarter of 2011, led by strong demand from China, India and the rest of the emerging world. World supply was already straining to keep up with this demand before the recent tumult in the Middle East. The mayhem in Tunisia, Egypt, Libya, Bahrain, Yemen and Iran has already taken 1.5 million barrels per day off the market, according to the IEA.

(Source: http://omrpublic.iea.org/)

The Obama administration and mainstream media continue to downplay the economic impact of the conflagration spreading around the world. The risk that oil prices gush toward the 2008 highs is much greater than the likelihood that this turmoil will subside and oil prices fall back to $80 per barrel. As the following chart shows, the daily oil supply coming from countries already experiencing revolution or in danger of uprisings is nearly 8 million barrels per day, or 9% of world supply. No country can ramp up production to make up for that shortfall.

	Proven Oil	Oil
Country	Reserves (billion barrels)	Production Per Day
Saudi Arabia	265	9,000,000
Iran	137	3,700,000
Iraq	115	2,700,000
UAE	98	2,300,000
Kuwait	102	2,300,000
Libya	46	1,600,000
Algeria	12	1,300,000
Qatar	25	820,000
Oman	6	810,000
Egypt	4	742,000
Syria	3	376,000
Yemen	3	298,000

The Washington DC spin doctors are now assuring the American people that Saudi Arabia can make up for any oil shortfall. Saudi Arabia has declared it has already turned the spigot on and will produce 10.0 million bpd, up from 8.5 million bpd.

Is this replacement production real? A leading industry expert revealed that the Saudis were already producing 8.9 million bpd in January. Hype and misinformation won’t fill your SUV with cheap gas. Saudi production peaked at 9.8 million bpd in 2005. When prices spiked to $147 per barrel in early 2008, their production grew only to 9.5 million bpd. Saudi oil fields are 40 years old and are in terminal decline. Their “spare capacity” doesn’t exist.

And the media ignore the quality difference between Libyan crude and Saudi crude. Libya’s oil is a perfect feedstock for ultra-low-sulfur diesel. The oil Saudi Arabia will supply to replace it is not. It takes three barrels of Saudi crude to yield the same quantity of diesel fuel as one Libyan barrel of crude, and only specially designed refineries can process high-sulfur Saudi oil.

The problem isn’t just turmoil in the Middle East. The Persian Gulf provides 17% of U.S. imports; 22% comes from Africa, 10% from Venezuela and 15% from Mexico. Many of these countries hate us. Mexico, although a relatively friendly country, will become a net importer of oil in the next five years, as its Cantarell oil field is in rapid decline. They’ll have nothing to sell to us.

The long and the short of it is that sunshine, corn and wind will not keep Americans from paying $5 per gallon or more for gas in the near future. The financial implications are that oil and energy investments will produce solid returns over the coming years.

This article was originally published in the Casey Report.

THERE ARE NO GOOD OUTCOMES

The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.

UNLEADED GAS

The “experts” speak as if they know what will happen, even though they never saw the rebellions coming in Tunisia, Egypt or Libya. They assure the masses that Libya doesn’t really have an impact on U.S. oil supply. It’s as if these shills never took Econ 101 in college. World oil demand is 88 million barrels per day. Oil supply is 88 million barrels per day. If 1 million barrels of oil supply are taken off-line, it doesn’t matter that the U.S. doesn’t get their oil from Libya. The Italians need their oil. Do the talking heads understand that oil is fungible? The supplier will ship the oil to the highest bidder. Presto!!! – $116 a barrel oil.

With Friends Like This, Who Needs Enemies

Let’s assess the probability of things getting better in the near, medium, long term or ever term. Take a gander at the chart below. These countries account for 29% of the daily world oil supply. Does it strike you as a list of stable countries with happy populations of employed young men? Egypt, Libya, Yemen, Syria and Iran have already experienced revolution or are on the verge of revolution. Algeria is dead man walking. The Saudi royal family is trying to buy off the masses to stay in power. The revolution genie is out of the bottle. It can’t be put back. Mix 40% unemployment, with millions of young men, no hope, and some Muslim fundamentalism and you’ve got yourself an out of control situation. No amount of public relations spin will create a positive outcome for the United States. The existing world order of despots, kings, and military juntas was just fine for Washington DC. They poured hundreds of billions of “aid”, tanks, helicopters and missiles to these “freedom fighter” despots who diverted the billions to their Swiss bank accounts and fell into line with U.S. policy. No matter who takes power when these revolutions succeed in toppling our puppets, the new regimes will not be friendlier toward America. And they still have the oil.

	Proven Oil	Oil
Country	Reserves (bil barrels)	Production Per Day
Saudi Arabia	265	8,400,000
Iran	137	3,700,000
Iraq	115	2,700,000
UAE	98	2,300,000
Kuwait	102	2,300,000
Libya	46	1,600,000
Algeria	12	1,300,000
Qatar	25	820,000
Oman	6	810,000
Egypt	4	742,000
Syria	3	376,000
Yemen	3	298,000

One look at the chart of self reported world oil reserves paints a picture of woe for the United States. Countries in the tinderbox of the Middle East and Africa control 65% of the world’s oil reserves. Saudi Arabia controls 20%, Iran and Iraq control 11% each, Venezuela controls 7%, Russia 5%, and Libya 3%. So, countries that can barely stomach our existence, hate us, or just despise us, control 57% of the world’s remaining oil. Sounds like a recipe for lower oil prices in the future. The two countries on our border are the only dependable suppliers for the U.S. Canada controls 13% of the world oil reserves, mostly in its tar sands. Mexico controls just over 1% of the world’s oil reserves, but supplies 13% of the U.S. daily oil supply.

Drill, Baby, Drill

Now for a reality check on the “Drill Baby Drill” propagandists like Larry Kudlow and the other dishonest Republican shills. The United States controls a full 1.58% of the remaining oil reserves in the world. We have 21.3 billion barrels of reserves versus 264 billion barrels in Saudi Arabia. We are currently producing 9 million barrels per day. At that production rate, the U.S. will deplete its proven reserves in the next 6 to 10 years. New discoveries will not be able to keep up with depletion of existing wells. The good news just keeps coming. Mexico’s oil production has been dependent upon one giant oil field since 1976. The Cantarell oil field produced 2.1 million barrels per day in 2003 at its peak. It is currently producing 464,000 barrels per day. Peak oil has arrived in Mexico. By 2015, the country that currently supplies 13% of our daily oil supply will become a net importer of oil. Drill Baby Drill.

Based upon the monthly import data below from the IEA, it would appear that, to paraphrase Chief Brody in Jaws, we’re going to need more corn. As the Obama administration operates in denial of these simple facts, they will continue to push ethanol and Chevy Volts to save us from dirty oil. We are already diverting 40% of our corn crop to the ethanol boondoggle. I’m sure that has nothing to do with the 98% increase in corn prices in the last year. Maybe tax credits for solar panels on SUVs and rubber band propeller cars will save the day.

We know for a fact that Mexico’s 1.2 million barrels per day will evaporate in the next few years. But, at least we have that solid dependable 2.7 million barrels per day (30% of our daily imports) from those stable bastions of democracy Nigeria, Venezuela, Iraq, Angola, and Algeria. Makes you want to go out and buy a Hummer. The storyline being sold to the American people is that there is no need to worry. Saudi Arabia will step to the plate and make up for any shortfalls throughout the world. Just one problem. Saudi Arabia is lying about their reserves and their ability to increase production. They’d fit in very well in Congress and on Wall Street.

Crude Oil Imports (Top 15 Countries) (Thousand Barrels per Day)
Country	Dec-10	Nov-10	YTD 2010	Dec-09	YTD 2009

CANADA	2,064	1,975	1,972	2,104	1,943
MEXICO	1,223	1,229	1,140	1,063	1,092
SAUDI ARABIA	1,076	1,119	1,080	870	980
NIGERIA	1,024	806	986	1,020	776
VENEZUELA	825	884	912	772	951
IRAQ	336	340	414	325	449
ANGOLA	307	263	380	266	448
BRAZIL	271	188	254	181	295
ALGERIA	262	379	325	336	281
COLOMBIA	220	489	338	179	251
ECUADOR	192	188	195	86	181
RUSSIA	158	85	252	168	230
KUWAIT	125	170	195	160	180
UNITED KINGDOM	124	80	120	67	103
ARGENTINA	85	35	29	33	53

Lies, Obfuscation, Misinformation & Denial

The late Matt Simmons made the strong case In his book Twilight in the Desert that Saudi Arabia has been lying about their reserves for years. Documents released by Wikileaks give support to this contention. Cables from the U.S. Embassy in Riyadh , released by WikiLeaks, urge Washington to take seriously a warning from senior Saudi government oil executive Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
The UK Guardian reported:

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as “peak oil”.

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: “According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”

The US consul then told Washington: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. “Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018,” it said.

It also reported major project delays and accidents as “evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production.” While fears of premature “peak oil” and Saudi production problems had been expressed before, no US official has come close to saying this in public.

The overstatement of reserves by Saudi Arabia and most of the OPEC countries should be abundantly clear to anyone with a smattering of critical thinking skills. This eliminates just about everyone on CNBC or Fox News. Essentially, the self reported, unaudited declared oil reserves from OPEC members are a fraud. Production quotas for each member of OPEC are dependent upon their oil reserve amount. When this was instituted in the early 1980s, shockingly OPEC countries miraculously added nearly 300 billion barrels to proven reserves in a six year period with NO NEW DISCOVERIES of oil. The chart below shows the unexplained jumps in reserves in red. Do you honestly believe any self reported number from Iran or Venezuela? Dr. Ali Samsam Bakhtiari, a former senior expert of the National Iranian Oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320–390 billion barrels and has said, “As for Iran, the usually accepted official 132 billion barrels is almost one hundred billion over any realistic estimate.”

Using some common sense, someone might ask, “How could Saudi Arabia’s oil reserves remain above 260 million for the last 22 years despite pumping over 60 billion barrels during this time frame, and not making any major new discoveries?” Maybe their statisticians did their training at Goldman Sachs or the Federal Reserve. The monster Saudi oil fields are over 40 years old. They will deplete. Oil is finite. They will not refill abiotically like some crackpots contend. Saudi Arabia’s production peaked in 2005 and it has been unable to reach that level since. The spin sheiks in Riyadh and spin doctors in Washington DC cannot spin oil out of sand. Peak oil is about to choke the American way of life.

Declared reserves of major Opec Producers (billion of barrels)
BP Statistical Review – June 2009
Year	Iran	Iraq	Kuwait	Saudi Arabia	UAE	Venezuela	Libya	Nigeria
1980	58.3	30.0	67.9	168.0	30.4	19.5	20.3	16.7
1981	57.0	32.0	67.7	167.9	32.2	19.9	22.6	16.5
1982	56.1	59.0	67.2	165.5	32.4	24.9	22.2	16.8
1983	55.3	65.0	67.0	168.8	32.3	25.9	21.8	16.6
1984	58.9	65.0	92.7	171.7	32.5	28.0	21.4	16.7
1985	59.0	65.0	92.5	171.5	33.0	54.5	21.3	16.6
1986	92.9	72.0	94.5	169.7	97.2	55.5	22.8	16.1
1987	92.9	100.0	94.5	169.6	98.1	58.1	22.8	16.0
1988	92.9	100.0	94.5	255.0	98.1	58.5	22.8	16.0
1989	92.9	100.0	97.1	260.1	98.1	59.0	22.8	16.0
1990	92.9	100.0	97.0	260.3	98.1	60.1	22.8	17.1
1991	92.9	100.0	96.5	260.9	98.1	62.6	22.8	20.0
1992	92.9	100.0	96.5	261.2	98.1	63.3	22.8	21.0
1993	92.9	100.0	96.5	261.4	98.1	64.4	22.8	21.0
1994	94.3	100.0	96.5	261.4	98.1	64.9	22.8	21.0
1995	93.7	100.0	96.5	261.5	98.1	66.3	29.5	20.8
1996	92.6	112.0	96.5	261.4	97.8	72.7	29.5	20.8
1997	92.6	112.5	96.5	261.5	97.8	74.9	29.5	20.8
1998	93.7	112.5	96.5	261.5	97.8	76.1	29.5	22.5
1999	93.1	112.5	96.5	262.8	97.8	76.8	29.5	29.0
2000	99.5	112.5	96.5	262.8	97.8	76.8	36.0	29.0
2001	99.1	115.0	96.5	262.7	97.8	77.7	36.0	31.5
2002	130.7	115.0	96.5	262.8	97.8	77.3	36.0	34.3
2003	133.3	115.0	99.0	262.7	97.8	77.2	39.1	35.3
2004	132.7	115.0	101.5	264.3	97.8	79.7	39.1	35.9
2005	137.5	115.0	101.5	264.2	97.8	80.0	41.5	36.2
2006	138.4	115.0	101.5	264.3	97.8	87.3	41.5	36.2
2007	138.2	115.0	101.5	264.2	97.8	99.4	43.7	36.2
2008	137.6	115.0	101.5	264.1	97.8	99.4	43.7	36.2

The denial, accusations and misinformation have already begun. Congressional hearings will be called to blame Big Oil and the dreaded speculators. Americans always need a bogeyman to blame for their mindless decisions and willingness to be led to slaughter by corrupt politicians. Big oil companies do benefit from higher oil prices. Big oil companies spend millions buying off Congressmen. Big oil companies cut corners, ignore safety procedures, and seek profits by any means possible. But, they do not control the oil. Nations control the oil. Many of these nations are led by lying, corrupt, evil despots. That is a fact. Blustering moronic Congressmen going after oil executives and phantom speculators is just a sideshow. It will divert the non-thinking masses from the truth that our leaders haven’t allowed a refinery or nuclear power plant to be built since 1977. These leaders have promoted and subsidized corn based ethanol that requires more energy to produce than it creates and has driven the cost of our food sky high. We are more dependent on foreign oil than any time in our history.

The real speculators are the Americans who clog our highways every morning driving monster SUVs, turbocharged sports cars, gas guzzling minivans, and pickup trucks that make them feel like salt of the earth tough guys despite living in their 6,000 square foot energy sucking McMansions in suburban tracts 30 miles from their jobs, if they have one. The ignorance of the average American car buyer knows no bounds. The recent bounce back in auto sales was led by SUVs and pickups. The green clean cars are nothing but hype and bullshit. GM expects to sell about 10,000 Volts this year, and Nissan expects to sell about 25,000 Leafs in the United States, a piss in the ocean compared with the millions of sport wagons and SUVs purchased by Americans annually. Americans have the attention span of a gnat and are already dazed and confused by the surge in gas prices to $3.50 per gallon.

When oil prices spiked to $147 barrel in 2008, Americans were spending $467 billion per year for fuel. By early 2009, the collapse in energy prices due to the worldwide recession reduced the annual expenditure to $265 billion, freeing up over $200 billion for consumers to spend on other items, pay down debt, or save. Expenditures for fuel had already surged back to $400 billion before the recent spike in oil prices. Next stop $500 billion. That should do wonders for the faux economic recovery that has been touted by Obama and the MSM for the last year. The years of denial, lies, indecision, bad decisions, and inertia have left the country vulnerable and at the mercy of countries in far off lands that despise our way of life.

There are no good outcomes, only bad, really bad, and catastrophic. Take your pick. Could gas prices drop below $3.00 per gallon if the world sinks back into recession? Yes. But it would only be momentary. The easy to access supply is dwindling. The medium and long term direction of gas at the pump is up. There is nothing that can be done in the next five years to prevent significantly higher oil prices. A full court press of realistic ideas like converting our truck fleets to natural gas, a major effort to build nuclear power plants, more drilling, greater use of wind, geothermal, and solar would take at least a decade to have an impact. There is no consensus or resolve to undertake such an effort. Therefore, Americans will suffer the consequences. Be a good American and take advantage of GM’s no interest for 7 years deal on their biggest baddest SUVs and buy two. What could go wrong?

HOW MANY SENATORS DOES IT TAKE TO SCREW A TAXPAYER? (Featured Article)

“Today, the government decides and they misdirect the investment to their friends in the corn industry or the food industry. Think how many taxpayer dollars have been spent on corn [for ethanol], and there’s nobody now really defending that as an efficient way to create diesel fuel or ethanol. The money is spent for political reasons and not for economic reasons. It’s the worst way in the world to try to develop an alternative fuel.” – Ron Paul

When bipartisanship breaks out in Washington DC, check to make sure your wallet is still in your pocket. Every time you fill up your car this winter you are participating in the biggest taxpayer swindle in history. Forcing consumers to use domestically produced ethanol is one of the single biggest boondoggles ever committed by the corrupt brainless twits in Washington DC. Ethanol prices have soared 30% in the last year as the supplies of corn have plunged. Only a policy created in Washington DC could drive up the prices of gasoline and food, with the added benefits of costing the American taxpayer billions in tax subsidies and killing people in 3^rd world countries.

The grand lame duck Congress tax compromise extended a 45-cent incentive to ethanol refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. The extension of these subsidies, besides costing American taxpayers $6 billion per year, has the added benefit of driving up food costs across the globe, causing food riots in Tunisia, and resulting in the starving of poor peasants throughout the world. This taxpayer boondoggle is a real feather in the cap of that fiscally conservative curmudgeon Senator Charley Grassley. He was joined in this noble effort by another fiscal conservative, presidential hopeful John Thune. It seems these guys hate wasteful spending, except when it benefits their states. The bipartisanship in this effort was truly touching, as Democrats Kent Conrad and Tom Harkin also brought home the pork for their states.

A bipartisan group of 15 senators signed a letter in late November demanding an extension of U.S. ethanol subsidies. I wonder if the fact they have received hundreds of thousands of dollars in campaign contributions during the past six years from pro-ethanol companies and interest groups like ADM, Monsanto, the National Corn Growers Association, and the Iowa Renewable Fuels Association had anything to do with this demand. You can always count on a Senator to do what’s best for his re-election campaign rather than what is best for the country. These symbols of political integrity will always spout the standard talking points:

Promoting ethanol reduces our dependence on foreign oil
Ethanol is green renewable energy
Ethanol is cheaper than gasoline

As we all know when dealing with a politician, “half the truth, is often a great lie.”

Amaizing

Corn is the most widely produced feed grain in the United States, accounting for more than 90% of total U.S. feed grain production. 81.4 million acres of land are utilized to grow corn, with the majority of the crop grown in the Midwest. Although most of the crop is used to feed livestock, corn is also processed into food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, yogurt, latex paint, cosmetics, and last but not least, fuel Ethanol. Of the 10,000 items in your average grocery store, at least 2,500 items use corn in some form during the production or processing. The United States is the major player in the world corn market providing more than 50% of the world’s corn supply. In excess of 20% of our corn crop had been exported to other countries, but the government ethanol mandates have reduced the amount that is available to export.

This year, the US will harvest approximately 12.5 billion bushels of corn. More than 42% will be used to feed livestock in the US, another 40% will be used to produce government mandated ethanol fuel, 2% will be used for food products, and 16% is exported to other countries. Ending stocks are down 963 million bushels from last year. The stocks-to-use ratio is projected at 5.5%, the lowest since 1995/96 when it dropped to 5.0%. As you can see in the chart below, poor developing countries are most dependent on imports of corn from the US. Food as a percentage of income for peasants in developing countries in Africa and Southeast Asia exceeds 50%. When the price of corn rises 75% in one year, poor people starve.

The combination of an asinine ethanol policy and the loosest monetary policy in the history of mankind are combining to kill poor people across the globe. I wonder if Blankfein, Bernanke, and Grassley chuckle about this at their weekly cocktail parties while drinking Macallan scotch whiskey and snacking on mini beef wellington hors d’oeuvres. The Tunisians aren’t chuckling as food riots have brought down the government. This month, the U.N. Food and Agricultural Organization (FAO) reported that its food price index jumped 32% in the second half of 2010 — surpassing the previous record, set in the early summer of 2008, when deadly clashes over food broke out around the world, from Haiti to Somalia.

Let’s Starve a Tunisian

“What is my view on subsidizing ethanol and farmers? Under the constitution, there is no authority to take money from one group of people and give it to another group of people for so called economic benefits. So, no, I don’t think we should do that. Besides, bureaucrats and the politicians don’t know how to invest money.” – Ron Paul

The United States is the big daddy of the world food economy. It is far and away the world’s leading grain exporter, exporting more than Argentina, Australia, Canada, and Russia combined. In a globalized food economy, increased demand for corn, to fuel American vehicles, puts tremendous pressure on world food supplies. Continuing to divert more food to fuel, as is now mandated by the U.S. federal government in its Renewable Fuel Standard, will lead to higher food prices, rising hunger among the world’s poor and to social chaos across the globe. By subsidizing the production of ethanol, now to the tune of $6 billion each year, U.S. taxpayers are subsidizing skyrocketing food bills at home and around the world.

The energy bill signed by that free market capitalist George Bush in 2008 mandates that increasing amounts of corn based ethanol must be used in gasoline sold in the U.S. This energy legislation requires a five-fold increase in ethanol use by 2022. Some 15 billion gallons must come from traditional corn-blended ethanol. Nothing like combining PhD models and political corruption to cause worldwide chaos. Ben Bernanke and Charley Grassley have joined forces to bring down the President of 23 years in Tunisia. People tend to get angry when they are starving. Bringing home the bacon for your constituents has consequences. In the U.S. only about 10% of disposable income is spent on food. By contrast, in India, about 40% of personal disposable income is spent on food. In the Philippines, it’s about 47.5%. In some sub-Saharan Africa, consumers spend about 50% of the household budget on food. And according to the U.S.D.A., “In some of the poorest countries in the region such as Madagascar, Tanzania, Sierra Leone, and Zambia, this ratio is more than 60%.”

The 107 million tons of grain that went to U.S. ethanol distilleries in 2009 was enough to feed 330 million people for one year at average world consumption levels. More than a quarter of the total U.S. grain crop was turned into ethanol to fuel cars last year. With 200 ethanol distilleries in the country set up to transform food into fuel, the amount of grain processed has tripled since 2004. The government subsidies led to a boom in the building of ethanol plants across the heartland. As usual, when government interferes in the free market, the bust in 2009, when fuel prices collapsed, led to the bankruptcy of almost 20% of the ethanol plants in the U.S.

The amount of grain needed to fill the tank of an SUV with ethanol just once can feed one person for an entire year. The average income of the owners of the world’s 940 million automobiles is at least ten times larger than that of the world’s 2 billion hungriest people. In the competition between cars and hungry people for the world’s harvest, the car is destined to win. In March 2008, a report commissioned by the Coalition for Balanced Food and Fuel Policy estimated that the bio-fuels mandates passed by Congress cost the U.S. economy more than $100 billion from 2006 to 2009. The report declared that “The policy favoring ethanol and other bio-fuels over food uses of grains and other crops acts as a regressive tax on the poor.” A 2008 Organization for Economic Cooperation and Development (O.E.C.D.) issued its report on bio-fuels that concluded: “Further development and expansion of the bio-fuels sector will contribute to higher food prices over the medium term and to food insecurity for the most vulnerable population groups in developing countries.” These forecasts are coming to fruition today.

It Costs What?

The average American has no clue about the true cost of ethanol. They probably don’t even know there is ethanol mixed in their gasoline. The propaganda spread by the ethanol industry and their mouthpieces in Congress obscures the truth and proclaims the clean energy mistruths and the thousands of jobs created in America. The truth is that producing ethanol uses more energy than is created while driving costs higher. The jobs created in Iowa are offset by the jobs lost because users of energy incur higher costs and hire fewer workers as a result. It takes a lot of Saudi oil to make the fertilizers to grow the corn, to run the tractors, to build the silos, to get the corn to a processing plant, and to run the processing plant. Also, ethanol cannot be moved in pipelines, because it degrades. This means using thousands of big diesel sucking polluting trucks to move the ethanol – first as corn from the fields to the processing plants, and then from the processing plants to the coasts.

The current ethanol subsidy is a flat 45 cents per gallon of ethanol usually paid to the an oil company, that blends ethanol with gasoline. Some States add other incentives, all paid by the taxpayer. On top of this waste of taxpayer funds, the free trade capitalists in Congress slap a 54 cent tariff on all imported ethanol. Ronald R. Cooke, author of Oil, Jihad & Destiny, created the chart below to estimate the true cost for a gallon of corn ethanol. Cooke describes a true taxpayer boondoggle:

It costs money to store, transport and blend ethanol with gasoline. Since ethanol absorbs water, and water is corrosive to pipeline components, it must be transported by tanker to the distribution point where it is blended with gasoline for delivery to your gas station. That’s expensive transportation. It costs more to make a gasoline that can be blended with ethanol. Ethanol is lost through vaporization and contamination during this process. Gasoline/ethanol fuel blends that have been contaminated with water degrade the efficiency of combustion. E-85 ethanol is corrosive to the seals and fuel systems of most of our existing engines (including boats, generators, lawn mowers, hand power tools, etc.), and can not be dispensed through existing gas station pumps. And finally, ethanol has about 30 percent less energy per gallon than gasoline. That means the fuel economy of a vehicle running on E-85 will be about 25% less than a comparable vehicle running on gasoline.

Real Cost For A Gallon Of Corn Ethanol

Corn Ethanol Futures Market quote for January 2011 Delivery	$2.46
Add cost of transporting, storing and blending corn ethanol	$0.28
Added cost of making gasoline that can be blended with corn ethanol	$0.09
Add cost of subsidies paid to blender	$0.45
Total Direct Costs per Gallon	$3.28

Added cost from waste	$0.40
Added cost from damage to infrastructure and user’s engine	$0.06
Total Indirect Costs per Gallon	$0.46

Added cost of lost energy	$1.27
Added cost of food (American family of four)	$1.79
Total Social Costs	$3.06

Total Cost of Corn Ethanol @ 85% Blend	$6.80

Multiple studies by independent non-partisan organizations have concluded that mandating and subsidizing ethanol fuel production is a terrible policy for Americans:

In May 2007, the Center for Agricultural and Rural Development at Iowa State University released a report saying the ethanol mandates have increased the food bill for every American by about $47 per year due to grain price increases for corn, soybeans, wheat, and others. The Iowa State researchers concluded that American consumers face a “total cost of ethanol of about $14 billion.” And that figure does not include the cost of federal subsidies to corn growers or the $0.51 per gallon tax credit to ethanol producers.
In May 2008, the Congressional Research Service blamed recent increases in global food prices on two factors: increased grain demand for meat production, and the bio-fuels mandates. The agency said that the recent “rapid, ‘permanent’ increase in corn demand has directly sparked substantially higher corn prices to bid available supplies away from other uses – primarily livestock feed. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land.”
Mark W. Rosegrant of the International Food Policy Research Institute, testified before the U.S. Senate on bio-fuels and grain prices. Rosegrant said that the ethanol scam has caused the price of corn to increase by 29 percent, rice to increase by 21 percent and wheat by 22 percent. Rosegrant estimated that if the global bio-fuels mandates were eliminated altogether, corn prices would drop by 20 percent, while sugar and wheat prices would drop by 11 percent and 8 percent, respectively, by 2010. Rosegrant said that “If the current bio-fuel expansion continues, calorie availability in developing countries is expected to grow more slowly; and the number of malnourished children is projected to increase.” He continued, saying “It is therefore important to find ways to keep bio-fuels from worsening the food-price crisis. In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, in the United States—together with removal of policies in Europe promoting bio-fuels—would contribute to lower food prices.”

The true cost of the ethanol boondoggle is hidden from the public. The mandates, subsidies and tariffs take place out of plain view. The reason blenders (and gas stations) will pay the same for ethanol is because they can sell it at the same price as gasoline to consumers. A consumer will pay the same for ten gallons of E10 as for ten gallons of gasoline even though the E10 contains a gallon of ethanol. Consumers pay the same for the gallon of ethanol for three reasons. (1) They don’t know there’s ethanol in their gasoline. (2) There is often ethanol in all the gasoline because of state requirements, so they have no choice. (3) They never know the ethanol has only 67% the energy of gasoline and gets them only 67% as far. The result is that drivers always pay much more for ethanol energy than for gasoline energy, simply because they pay the same amount per gallon. When gasoline prices are $3.00 per gallon, Joe Six-pack pays $4.50 for the same amount of ethanol energy.

You know a politician, government bureaucrat or central banker is lying when they open their mouths. Whenever evaluating a policy or plan put forth by those in control, always seek out who will benefit and who will suffer. Who benefits from corn based ethanol mandates and subsidies? The beneficiaries are huge corporations like Archer Daniels Midland and Monsanto, along with corporate farming operations (80% of all US farm production), and Big Oil. The mandated ethanol levels are set in law. By providing tax subsidies we are bribing oil companies with taxpayer dollars to do something they are legally required to do, resulting in a $6 billion windfall profit to oil companies. The other beneficiaries are the Senators and Representatives from the farming states who are bankrolled by the corporate ethanol beneficiaries and their constituents who will re-elect them. The environment does not benefit, as many studies have concluded that it requires more fossil fuel energy (oil & coal) to produce a gallon of ethanol than the energy created. The jobs created in the farm belt at artificially profitable ethanol plants are more than offset by job losses due to the added costs in the rest of the economy. When subsidies are removed or oil prices drop, the ethanol plant jobs disappear, resulting in a massive capital mal-investment.

Our supposedly wise PhD and MBA leaders have created a perfect storm. The unintended consequences of government intervention in the markets are causing havoc, food riots, starvation and intense suffering for the poor and middle class. Brazil produces sugar cane ethanol in vast quantities and can export it to the U.S. much cheaper than we can produce corn ethanol. Fuel prices would be lower without tariffs on Brazilian ethanol imports. The average cost of food as a percentage of disposable income for an American is 10%. Averages obscure the truth that the cost is probably .0001% for Lloyd Blankfein, Ben Bernanke and Chuck Grassley, while it is 30% for a poor family in Harlem. America’s horribly misguided ethanol policy combined with Ben Bernanke’s Wall Street banker subsidy program are resulting in soaring fuel and food prices across the globe. Poor people around the world suffer greatly from these policies. Below are two assessments of ethanol.

“Everything about ethanol is good, good, good.” – Senator Chuck Grassley, Iowa

“This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.” – Jeff Goodell

Who do you believe?