Decline of the Empire

Remedy du Jour -- May 22, 2010

Today's remedy doesn't include disasters, the waning Empire, the possibility of a Global Depression, over-fished oceans or anything else we might get depressed about. First up is Missing from Everything But The Girl. Lena Horne died recently, so I've included her famous version of Stormy Weather. Our film clip today is from Woody Allen's Manhattan (from 1979, when he was good).

French Revolution Redux?

In On the brink of a new age of rage historian Simon Schama, a student of the French Revolution, raises the possibility of a new revolt in Europe and America (Financial Times, May 21, 2010, subscription or registration required).

Far be it for me to make a dicey situation dicier but you can’t smell the sulphur in the air right now and not think we might be on the threshold of an age of rage. The Spanish unions have postponed a general strike; the bloody barricades and the red shirts might have been in Bangkok not Berlin; and, for the moment, the British coalition leaders sit side by side on the front bench like honeymooners canoodling on the porch; but in Europe and America there is a distinct possibility of a long hot summer of social umbrage. Historians will tell you there is often a time-lag between the onset of economic disaster and the accumulation of social fury. In act one, the shock of a crisis initially triggers fearful disorientation; the rush for political saviours; instinctive responses of self-protection, but not the organized mobilization of outrage. Whether in 1789 or now, an incoming regime riding the storm gets a fleeting moment to try to contain calamity. If it is seen to be straining every muscle to put things right it can, for a while, generate provisional legitimacy...

So we face a tinderbox moment:, a test of the strength of democratic institutions in a time of extreme fiscal stress...

The same kind of pre-lapsarian romanticism targeted at an elitist federal authority is raging through the US like a fever. The best way to understand the Tea Party, which has just scored its first victory with the libertarian Rand Paul defeating the choice of the official Republican party, is to see it as akin to the Great Awakenings and the Populist furies of the end of the 19th century. There are calls to abolish the Federal Reserve or in some cases Social Security, fuelled by the conspiratorial belief that it was an excess, not a deficit, of government regulation that brought on the financial meltdown. Claims that Washington has been captured for socialism are preached on rightwing talk radio as gospel truth. As they did in the 1930s with Father Coughlin, the radio demonisers are pitch-perfect orchestrators of hatred for listeners in bewildered economic distress...

This reminds me of Gerald Celente's "Greatest Depression" prediction for 2010, which I wrote about in March—

... when Celente says the "greatest" depression, the claim is that we should prepare for a shitstorm worse than the worst years of the Great Depression in the early 1930s. Several lines of evidence (e.g. the housing market, unemployment) point to no recovery or gradually worsening conditions. However, it appears that Celente is talking about an actual collapse leading to a breakdown in social order.

The fiscal crisis in Europe and the impending collapse of China's bubbles make the situation far more precarious than I thought it was back in March. I did not agree with Celente—and still don't—that a breakdown in social order, particularly here in the United States, was likely in 2010, but Schama seems to broach that possibility. It is easy to see why Americans would want to revolt. Consider this graph (ht, Yves Smith) from Kate Pickett's presentation to the recent INET conference.

The result of Cowboy Capitalism — this outrageous situation speaks for itself

Here's a quote from Yves Smith's article—

Having weakened faith in government and made considerable progress towards creating a social Darwinist paradise of isolated individuals pitted against each other, the [American] oligarchs may be about to harvest a whirlwind

I don't think America's elites will be reaping the whirlwind any time soon, but her sentiment is entirely correct. My analogy for our social Darwinist paradise compares our situation to a giant game of Survivor—it's every man for himself in the good ole' U.S. of A. This "competition" creates a few rich, powerful people (the "elites") and a shitload of poor, powerless people (the "little people" or hoi polloi).

I think American citizens have internalized this social Darwinist lesson, i.e. they believe it themselves. They actually believe—have been encouraged to believe—a society should work this way, a story which is quite insane. Moreover, Americans have been beaten down for far too long to stage a revolt. They are thoroughly domesticated. No matter how unjust & unhealthy our society becomes during the waning days of the Empire, as shown in the graph above, it remains unrealistic to expect a French Revolution in America.

A Hard Rain's Gonna Fall

Yesterday, I asked whether the world is falling apart. I concluded there was (at least) a 50% of chance of a Global Depression. Such an event would undoubtedly drag down the United States along with all the other failed states. Where's the bottom? No one can predict the future, but I think my baseline 50% chance may be a tad optimistic. We'll see.

Check out Dow Theorist Richard Russell's note to his clients—

Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.

Naturally, Russell expresses a stock-market-centric view of things, but I agree with the sentiment—A Hard Rain's a-Gonna Fall. We can turn to Wal-Mart for a more fundamental indicator of where stand.

(Fortune) -- It certainly looks like happy days are here again. Many of the nation's biggest retailers, including Saks, Hewlett-Packard, Home Depot, and Target have released cheery sales reports. April's jobs reports showing a slight increase in the workweek and pay for workers, and more hiring across the board...

And then there is Wal-Mart, whose happy yellow face switched to a grimace when it released first quarter sales on Tuesday. Although international growth helped push revenues up 6%, sales at U.S. stores fell 1.4% from the same period last year. And the company had no one to blame but its shoppers. "More than ever, our customers are living paycheck to paycheck," said Tom Schoewe, the chief financial officer.

So who are you supposed to believe? In this case, Bentonville. When Wal-Mart, an economic bellwether, notes that customers can't afford the gas to get to the stores and that they're increasingly using food stamps when they get there, things are bad.

Things are bad? No shit! What was your first clue? (See my Gourmet Eating With Food Stamps and GDP Is The Real Fraud.)

The only difference between a month ago and now is that CNNMoney and Fortune and others have started notice that things are bad. And why did they start noticing? Because the heretofore overvalued, rigged stock market is crashing. As unbelievable as it sounds, that's precisely what it took for these fools to discover that there is a huge impoverished underclass in the United States, a society where 85% of the people own a meager 15% of the wealth. When the market was soaring, none of this mattered—Happy Days Were Here Again.

The Los Angeles Times is also becoming enlightened. This quote is from their Consumer spending trend is a shaky foundation for economic recovery—

May 16, 2010 By Don Lee, Los Angeles Times

Reporting from Washington — Increased consumer spending has fueled hopes that the current economic recovery will keep getting stronger, but behind the encouraging numbers is a little-noticed reality: Much of the new spending has come not from America's broad middle class but from a small slice of affluent people at the top.

And upper-crust spending, while welcome, can be worrisomely volatile: Since it involves luxuries, not everyday necessities, the buying can suddenly shrink if something such as the recent stock market plunge panics affluent shoppers.

Here we have the direct connection between rosy retail sales numbers and the stock market. The rich have boosted sales, but now that they're losing money in the market again, they may pull back on luxury purchases. (See my The Rich Are On The Rebound.) Did anyone really think The Poor or the debt-laden not-so-broad-as-it-once-was Middle Class were the ones pushing retail sales higher? Give me a break!

At Tech Ticker Henry and Aaron note that the latest CPI indicates deflation, not inflation. As the Great Depression economist Irving Fisher noted in 1933, the value of the dollar is "swelling," not shrinking. Unfortunately, this is not good news for desperate households living paycheck-to-paycheck. When goods & services get cheaper over time, there is little incentive to purchase said goods & services. Decreased demand means decreased economic growth and even higher unemployment than we've got now.

The only good news I can find in this economic implosion is that the oil price is also crashing, which will mean lower gasoline prices when retailers eventually get around to marking down prices.

Throw in the crisis in Europe, the crumbling housing market in the United States, and the impending collapse of the bubblicious Chinese economy, and you've got the makings of a Hard Rain. Here's Bob—

Is The World Falling Apart?

With the exception of wartime, "the public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution. Restoring fiscal balance will be a drag on growth for years to come."
   —Willem Buiter, Citigroup's top economist

If you have to pose the question in today's title, then you have also gone a long way toward answering it. When I say "the world" I am referring to the global economy in the short-term (within 1 year). I don't doubt "the world" is falling apart in the long-term, but that will takes years (oil price shocks) or decades (dead oceans) to unfold. Obviously, shorter-term outcomes influence the timing of (still inevitable) longer-term outcomes.

In 2010 the situation feels a lot like 2008, only worse. Emotions are running high. We are looking at the possibility of a very large deflationary dip in global demand for goods & services, which is why everybody is so freaked out—a Global Depression. We live in times prone to hysteria, but never in my lifetime has there been so much fear about market & sovereign outcomes. (These are increasingly the same thing.)

The reasons for our fears & worries are in plain sight.

• Within a year's time, will the Euro (and thus the Eurozone) still exist? Will various European nations accept the new austerity?
• When will China's over-stimulated, overheated economy cool down? When will their asset bubbles collapse?
• Will the United States fall back into recession because of high, sustained unemployment and a housing market on life-support?

These are not separate questions, for in a globalized economy every nation's economic health depends more and more on that of all the others. Contagion is the rule, not the exception. The various regions making up the world economy are connected by trade, finance (investments, inter-bank dependencies), swap lines between central banks and currency exchange rates, and these connections are not simple.

For example, stronger currencies (relative to others) hinder exports and promote imports. Financial investments and trade arrangements are usually denominated in foreign (local) currencies and hedged through foreign exchange (FX) derivatives contracts (currency & forex swaps or options) currently worth tens of trillions of dollars on the world market. These contracts are supposed protect investors against currency exchange rate volatility. This many-tentacled financial octopus may not be stable when tested under these new economic circumstances. Finance for trade is becoming scarce.

Exchange rates may be volatile for months (or years) to come. It's not clear how this is going work out. Right now the Euro is falling like a brick against the dollar. The Chinese peg their dollar (the Yuan) to the American dollar, but no doubt did not anticipate this large strengthening of our dollar against the Euro. Normal trade relationships are being altered or severely pressured. These previous arrangements will be replaced by—what?

Doubtless there will be a considerable slowdown of economic activity in the Eurozone. It doesn't appear that subsidized workers in Europe will easily accept the new austerity terms. Social unrest is spreading. And with all the turmoil in Europe, only a few observers are paying attention to China. I find it alarming that the Chinese have been a net importer recently. This new development is purely a function of China's overheated economy. But now China's imports are headed south again, and their exports can't be far behind.

The government in Beijing has been aggressive in using money policy to damp down property speculation as a way to steer China’s hot economy away from a meltdown. Avoiding dangerous bubbles makes long-term sense, but there have been short-term costs: the benchmark Shanghai Composite Index is down more than 20 percent year-to-date. It fell 5 percent on Monday alone...

Four straight months of strong year-over-year recovery in China’s exports was likely a key factor considered by the government when it imposed anti-property speculation policies last month. But the sovereign debt crisis in the Eurozone is another key factor. Europe is China’s largest trading partner, and the debt crisis has led to a significant devaluation of the euro against the Chinese yuan.

The yuan, which is pegged to the U.S. dollar, is up 14 percent against the euro in just the past four months. The stronger yuan makes Chinese-made products more expensive in the eurozone, and this hurts exporters.

The three-month trend of China’s imports, a leading indicator of future exports, has already headed down. Should a meaningful export deceleration occur in the intermediate term, Chinese authorities may reverse policies to protect economic growth.

China and some lesser emerging economies are carrying the world economy on their collective backs at this point, but that situation could change quickly. These developing economies taken altogether only amount to about 8-9% of global GDP, with China accounting for the lion's share.

There's a damn good chance that the Chinese will not be able to control the rampant speculation created by their massive stimulus. My view is that we should not be calculating whether their various bubbles will collapse. Instead, we should be trying to figure out when they will collapse, and then trying to figure out what the effects on the global economy will be. Economic bubbles always end in tears sooner or later—there are no exceptions.

And what about here in the Good 'Ole U.S. of A? That's not my subject today, but suffice it to say that we are The Smartest Kid In the Stupid Class—we only look good by comparison with all the other blockheads. The danger is that our newly discovered fiscal "virtue" will only intensify our already dangerous complacency. Let's face it: America has gotten away with many, many irresponsible things (at least for the time being) only because our dollar is the world's reserve currency and we own the money printer. Without our privileged status, these clowns running Congress, the Treasury and the Central Bank would have been tossed out on their ear a long time ago would have been exposed long ago as the unaccountable, spendthrift, corrupt fools that they are.

Is the world falling apart? My best guess is that there's at least a 50% chance of a Global Depression starting this year or early next year. The oil price is already crashing as the dollar strengthens in anticipation of a sharp downturn in global economic activity. A lot of things have to go right in Europe, in China and in the United States to avoid this outcome. There are good reasons why everybody is running scared. Here's a video to watch as you contemplate all this.

That's enough depressing stuff to chew on today—Hasta La Vista, Baby!

Meet Bill Black

William "Bill" Black, professor of economics & law at the University of Missouri-Kansas City, probably knows more about bank fraud than anybody else on the planet. The author of The Best Way To Rob A Bank Is To Own One, Bill Black is one the Good Guys in the financial debacle we've witnessed over the last few decades. The heroes in this story are easy to identify because there are so few of them.

But this is also a Tale of Two Bills because Bill Moyers, who interviews Black in a video below, is retiring at the age of 76. He will be sorely missed because he can not be replaced. Integrity is hard to come by in this day and age. He explains his reasons for leaving at the start of the video. Goodbye, Bill, I'm sorry to see you go.

The first video is relatively short (8:00) but sweet—it is Bill Black's blunt testimony before Congress regarding fraud at Lehman Brothers. The second video has Moyers interviewing Black. Enjoy! (if that's the right word for it...)

Peak Fish And the Biodiversity Crisis

We were recently reminded yet again that regarding the Earth's biodiversity crisis, we need to get used to failure.

World leaders have failed to deliver commitments made in 2002 to reduce the rate of biodiversity loss, and have instead overseen alarming biodiversity declines. These findings are the result of a new 2010 Biodiversity Indicator Partnership (2010 BIP) paper published in leading journal Science and represent the first assessment of how targets made through the 2002 Convention on Biological Diversity (CBD) have not been met.

Compiling over 30 indicators—measures of different aspects of biodiversity, including changes in species' populations and risk of extinction, habitat extent and community composition—the study found no evidence for a significant reduction in the rate of decline of biodiversity, and that the pressures facing biodiversity continue to increase. The synthesis provides overwhelming evidence that the 2010 target has not been achieved.

Dr. Stuart Butchart talks about the missed 2010 biodiversity target

I first wrote about the biodiversity crisis in The Sixth Extinction. It is the 6th because in the Phanerozoic, the period from the beginning of the Cambrian 543 million years ago to the present, there have been five other Mass Extinctions. I included a section on Peak Fish in that article, which you can consult if you want the grisly details. The cause of the Sixth Extinction is not hard to find—we have met the enemy and he is us.

Those of you familiar with a world oil production curve will feel right at home looking at this Peak Fish graph.

Marine & all wildfish catches peaked in the 1990s. Data from the FAO graphed by Wikipedia

The graph does not show how we are fishing down the food chain (so-called trophic levels) to achieve our current wildfish "production."

In yesterday's article How We Wrecked The Oceans, Jeremy Jackson reminds that in 20 or 50 years following current trends, there won't be anymore fish (except for minnows) in the world's oceans. Just today I learned of a new study telling us the same thing. This is taken from a Yahoo press report Ocean's Fish Could Disappear In 40 Years: UN—

Mon May 17, 1:00 pm ET

NEW YORK (AFP) – The world faces the nightmare possibility of fishless oceans by 2050 without fundamental restructuring of the fishing industry, UN experts said Monday.

"If the various estimates we have received... come true, then we are in the situation where 40 years down the line we, effectively, are out of fish," Pavan Sukhdev, head of the UN Environment Program's green economy initiative, told journalists in New York...

The report, which was opened to preview Monday, also assesses how surging global demand in other key areas including energy and fresh water can be met while preventing ecological destruction around the planet.

UNEP director Achim Steiner said the world was "drawing down to the very capital" on which it relies. However, "our institutions, our governments are perfectly capable of changing course, as we have seen with the extraordinary uptake of interest. Around, I think it is almost 30 countries now have engaged with us directly, and there are many others revising the policies on the green economy," he said.

Fish stocks is not only an environmental matter.

One billion people, mostly from poorer countries, rely on fish as their main animal protein source, according to the UN. The Green Economy report estimates there are 35 million people fishing around the world on 20 million boats. About 170 million jobs depend directly or indirectly on the sector, bringing the total web of people financially linked to 520 million.

According to the UN, 30 percent of fish stocks have already collapsed, meaning they yield less than 10 percent of their former potential, while virtually all fisheries risk running out of commercially viable catches by 2050.

Those 1,000,000,000 people whose main source of protein comes from fish, together with (even excluding double counting) those 520,000,000 people linked directly or indirectly to the fishing industry, certainly does put a lot of pressure on fishermen to catch fish, doesn't it?

The alert reader will note UNEP director Achim Steiner's message of Obligatory Hope: our institutions, our governments are perfectly capable of changing course... These institutions & governments may be perfectly capable of changing course in some superficial sense, but will they? I doubt it. There's little or no chance they will act in my view. Once again see my How We Wrecked The Oceans.

So far, the only thing perfect in our response to the ongoing biodiversity crisis is our unblemished record of failure to do anything significant about it.

How We Wrecked The Oceans

Like the Indo-Aryan God Shiva, Destroyer of Worlds, marine ecologist Jeremy Jackson is here to turn your comfortable, complacent Mental World upside-down. He's able to do that because we humans are destroying our Earthly habitat—in this case, the oceans.

Before I continue, I want you to watch How We Wrecked The Oceans (18:19). Will you watch it? Too busy, maybe later? Maybe never? If you have any interest, however small, in the future of life on this planet, including human life, I suggest you watch it now.

 

Finished? That was tough, I know. Are you feeling a bit less confident about the future? I hope you didn't conclude that wrecking the oceans is inconsequential, that we can easily fix it—denial is not just a river in Egypt. Let's talk about that much ignored, much maligned subject called Reality.

I'll start with a quote from a review of Eaarth, a new book by the earnest but "grudgingly" optimistic environmental activist/writer Bill McKibben.

It is in this final section [of the book], called “Lightly, Carefully, Gracefully,” that the real problems begin. If you are, like McKibben, a grudging optimist who believes that human society can willfully transform into a better version of itself, you might be persuaded by his arguments, some of them new, others a little old hat.

Arguments that a smaller, diversified agriculture could add stability to our compromised industrial food-production system. That “growth” as an economic model is inherently flawed and will no longer be viable. That an “uptick of neighboring” will spread the sharing and implementation of practical, Eaarth-friendly how-to-ism. That the Internet could alleviate the rural boredom so many of us dread when we contemplate chucking it all and going back to the land, as he argues we must

But many of these proposed solutions inadvertently resemble the list of things Christian Lander lampooned in his 2008 best seller Stuff White People Like: “farmer’s markets,” “awareness,” “making you feel bad about not going outside,” “vegan/vegetarianism.” It’s not that these things aren’t important.

But in the absence of some overarching authority, a kind of ecologically minded Lenin, they will remain hipster lifestyle choices rather than global game changers...

Let's have Jeremy Jackson respond to McKibben's solutions. Here's what he says near the end of the talk—

What will the oceans be like in 20 or 50 years? Well, there won't be any fish, except for minnows, and the water will be pretty dirty, and all those kinds of things, full of mercury, etc, etc ... and we can imagine something like the dead-zonification of the global coastal ocean, and you sure won't want to eat fish that were raised in it because...

The question is how are we all going to respond to this? And we can do all sorts of things to fix it, but in the final analysis, the thing we really need to fix is ourselves. It's not about the fish, it's not about the pollution, it's not about the climate change, it's about us and our greed and our need for growth, and our inability to imagine a world which is different from the Selfish World We Live In Today.

So the question is will we respond to this? Or not? I would say that the Future of Life and the Dignity of Human Beings depends on our [response]. Thank you.

There are two levels of change with very widely separated degrees of difficulty described in the two quotes, although both are right about the need to stop striving for endless economic growth.

At a deeper level, the question turns on whether human behavior is almost malleable without limit. McKibben believes human society can (in the words of the reviewer) willfully transform into a better version of itself. This quote is from another review of McKibben's Eaarth.

But McKibben doesn’t advocate obsessing on our collapse – which he says gives us only two choices: “Either you’ve got your fingers stuck firmly in your ears or you’re down in the basement oiling your guns” – rather he calls on us "to choose, instead, to manage our descent," to aim for a "relatively graceful decline" [emphasis is McKibben’s].

McKibben calls on us to choose to manage our descent. But can we humans "choose" to do that? That's the question on the table.

Jeremy Jackson doesn't offer Obligatory Hope or beg the all-important question. He doesn't pretend that forming local, self-sufficient communities is going to ameliorate the terrible effects of biologically impoverished, stratified oceans, or prevent a mass extinction in the oceans. In Jackson's view, Homo sapiens must somehow be Born Again. We have to fix ourselves because we are the problem. And no procrastinating allowed, because we're out of time—we have to do it now. This is our wake-up call.

I'll leave it up to you to decide whether humans can radically change their collective behavior. Here at DOTE, I make it a point to avoid the usual Obligatory Hope. If it walks like a duck and it quacks like a duck, it's a duck. I believe Human Nature is fixed, despite enormous but ultimately superficial cultural and individual diversity. We're a species, so what you see is what you get.

Tomorrow I will update my past writings on Earth's biodiversity crisis.

Our Gamma Ray Action Man Tackles The Oil Leak

As BP struggles to stem the oil leak on the Mississippi Canyon seafloor, there's been considerable talk about the government's response to the disaster. Some have labeled  it "Obama's Katrina" while others have praised the administration's prompt reaction to the problem. Republicans incline to the former, while Democrats prefer the latter. Like anything else in our polarized, paralyzed, useless Politics, the oil leak has become a partisan issue.

In a fawning blog post, Joshua Green—a senior editor for The Atlantic since 2003 and according to the Columbia Journalism Review, one of ten young writers on the rise—interviewed Energy Secretary Steven Chu concerning his damn-near heroic efforts to stem the oil leak.

It sounds like something right out of Marvel Comics: Government scientists suggest firing high-energy gamma rays -- GAMMA RAYS! -- to diagnose a leaking oil well a mile below the surface of the ocean. But that's what happened in the Gulf, when Energy Secretary Steven Chu and his team advised BP to use the gamma ray imaging technology to finally see the extent of the damage to the underwater blowout preventer, the safety device that was supposed to seal the oil well.

An eternal fact of Washington is that government gets much more attention when it performs badly than when it performs well. As an illustration of the former, recall the aftermath of Hurricane Katrina. To illustrate the latter, consider how the media is covering government right now. By my count at least three major natural disasters have occurred in recent weeks: the Nashville flooding, the deadly Oklahoma tornadoes, and the BP oil spill (admittedly not "natural" but threatening to be a major environmental disaster). Let's throw in an attempted terrorist attack in Times Square, too. On every front, government has performed ably--and often better than ably. And yet it's understating things considerably to say this success has not been widely recognized.

It should be recognized, though, because when it comes to government disaster response, the Bush years marked a low point and right now we're experiencing a high point...

As ass-kissing goes, this text is almost unmatched in the long history of Imperial sycophancy. A young man on the rise indeed! Here's part of Green's interview with Chu.

Chu — ... The president charged me with assembling a small team of scientists to go down there and that was what we were doing beginning Tuesday night. The idea was to bring in very smart people who also have great connections to the larger engineering and scientific community. The national lab director who's been engaged in this from the beginning, Tom Hunter, and I and four other scientists and engineers went down there.

Green — How is it that you know enough about gamma rays and oil spill technology to be helpful? I wasn't aware that that was an area you'd worked in before you were secretary?

Chu — Oil spills were not something I've worked on, but I do know about gamma rays.

Green — How?

Chu — Because I'm a physicist. And I dabble in many areas of physics. I did experiments when I was a graduate student on weak interactions, which are the forces of nuclear decay. And so I kept in my brain certain nuclear sources and what their energies were and I knew what the ranges were for how penetrating gamma rays could be. Very high-energy gamma rays can penetrate several inches of steel...

After this was published, Salon's Andrew Leonard had the temerity to question the importance of Chu's contribution to fixing the still-raging oil leak. This quote is from his Steven Chu: Obama's oil spill gamma ray action man—

However, Green and Chu are awfully short on details as to exactly what BP accomplished with the gamma ray tech they borrowed from Sandia National Labs. The planet has not been saved, yet. Yes, a New York Times article mentions in passing that "gamma-ray inspection of the [blowout preventer] device showed that it 'has external integrity,' the official said." And BusinessWeek offers a rundown of the brain trust summoned to the scene by Chu, including  scientists involved with "designing the first hydrogen bomb, inventing techniques for mining on Mars and finding a way to precisely position biomedical needles."

Again, I applaud such efforts. But you'd think with the application of all this brainpower and gee-whiz technology that we'd at least have a good handle on how much oil is currently spilling into the gulf. A good scientist tries to get a fix on the extent of the problem at hand, no?

Gamma Ray Action Man

The Gamma Ray Action Man worships science & technology—there is no other word for it. His faith that basic research & new technology solves all problems is limitless. I first described his exaltation of Man's Cleverness in The Secretary of Synthetic Biology. (This article was widely praised by the few people who actually read it.)

Chu's idea of solving any problem is to get a bunch of "smart people" together—it doesn't matter if they know anything about the problem at hand—to brainstorm the situation and come up with suggestions for lines of attack. Whether these potential "solutions" are irrelevant or involve decades-long research projects doesn't matter. The oil leak is a case in point.

The blow-out preventer (BOT) is broken, it isn't going to get fixed, and who gives a shit about it's "external integrity" at this point? Who, outside the Action Man, could possibly care about shooting GAMMA RAYS at the BOT when there are thousands of barrels of crude oil pouring into the Gulf of Mexico everyday?

Chu could be easily dismissed as just another goofball except for the fact that he is the Secretary of Energy, and Chu's solutions to our oil supply problem are just about as relevant to solving that problem as his gamma-ray inspection of the blow-out preventer was to fixing the oil leak. I first described this foolishness in Steven Chu's Energy Miscalculations. 

If you care about the oil issues and the policies of Dr. Chu, I suggest you read my (long) articles on the subject. As to whether Democrat disaster responses are far superior to Republican disaster responses, I have a suggestion: root for BP to plug the leak and save the embarrassing partisan bickering for later.

Frank Zappa said politics is high school with guns and more money. I might add and more technology. Speaking of which, let me introduce you to the Turbo Encabulator.

I'm sure The Gamma Ray Action Man will be interested...

Remedy du Jour -- May 15, 2010

The oil leak goes on and on and on just I thought it would. Read Oil Spills — There's No Free Lunch.

Welcome to your life
There's no turning back
Even while we sleep
We will find you
Acting on your best behavior
Turn your back on mother nature
Everybody wants to rule the world

It's my own design
It''s my own remorse
Help me to decide
Help me make the most
Of freedom and of pleasure
Nothing ever lasts forever
Everybody wants to rule the world
   — Tears For Fears

The tune I've quoted, Everybody Wants To Rule the World, has an embedded limits-to-oil theme, which I certainly didn't understand when I first heard it & watched the video in 1985—all I wanted to do in 1985 was take drugs, dance the night away, and get laid. Sex, Drugs and Rock & Roll. Unfortunately, life forced me to sober up. Nothing, including oil, lasts forever.

Sticking with oil, Australia's Clarke & Dawe describe a tanker mishap that occurred Down Under when The Front Fell Off. Today's movie also has an oil theme. The clip is from 3 Days Of The Condor (1975) directed by Sidney Pollack and starring (a young!) Robert Redford, Cliff Robertson and Faye Dunaway. Be sure to watch the movie's final scene too.

Oil Takes A Dive

The oil price is heading down to the level where I thought it should be all along—below $70/barrel.

The oil leak in the Gulf, which poses a threat to future production there, should have caused the price of oil to go up, but a few paragraphs in the Wall Street Journal's latest report on oil futures tells the story.

Big swings in the oil market are often driven by speculative investors, as opposed to oil producers and refiners, who go to the futures market continuously to regularly lock in prices. As the dollar weakened versus the euro following the Federal Reserve's unprecedented measures during the 2008 financial crisis, these investors gravitated toward globally traded oil futures. While oil prices over the course of 2009 more than doubled in dollar terms, the rally was much more muted when viewed through the euro's prism.

The commodity-currency trade is now unraveling. The euro on Friday hit its lowest point against the dollar since October 2008.

There you have it. Regarding future price changes, keep your eye on China.

May 12 (Bloomberg) -- China’s accelerating inflation and surging house prices are adding pressure on policy makers to raise interest rates and allow yuan gains even as their concerns over Europe’s debt woes persist.

Property prices rose at a record pace in April, consumer prices climbed at the fastest rate in 18 months and new lending exceeded the forecasts of all 24 economists surveyed, figures showed yesterday...

“There is an overheating of the economy,” Nouriel Roubini, professor of economics at New York University, said on Bloomberg Television today. “China should be tightening monetary policy, increasing interest rates and let its currency appreciate over time. They are too slow, they are not doing it fast enough.”

Defying Crackdown

The 12.8 percent jump in property prices in 70 cities was the biggest since data began in 2005, defying a government crackdown on speculation that intensified last month.

Producer prices jumped 6.8 percent, the fastest pace in 19 months, while consumer prices climbed 2.8 percent, up from 2.4 percent in March. New lending of 774 billion yuan ($113 billion) was more than any of 24 economists estimated. Retail sales growth accelerated to 18.5 percent in April from a year earlier...

If China does tighten, as they should to unwind the bubbles they're blowing before they collapse, the oil price will fall further—perhaps much further. However, governments throwing a Big Party are not known for cutting people off and sending them home. It didn't happen during our Housing Bubble, and I doubt it will happen in China. So we'll likely have to wait for these bubbles to blow up in their own sweet time. I expect this to happen in the 3rd or 4th quarters of this year.

Back to the Journal—

Despite the steep drop already, there continues to be a significant number of speculative long positions, or bets that prices will rise, by investors who expect a turnaround in prices. If these investors turn bearish, further declines are certain.

If you expect a (sharp) turnaround in prices at this point, you should probably have your head examined. When the longs leave the market, the price will take another dive. At which point OPEC will make some cuts to (attempt to) maintain a floor under the price.

My Forecast:

• Prognosis for the Euro: Grim (near parity with the dollar)
• Prognosis for the Global Economy: Anemic or no growth until China blows up, then Grim
• Oil Price: Look for oil to fall to the mid-$60s (and then perhaps much lower) before it hits $85/barrel again