From 10,000 Feet

Here are three telling quotes from a Reuters news story about the Fed contemplating a rate cut from 2.25 to 2.00.

April 30, 2008 (Reuters)
The U.S. housing market has shown no sign of hitting bottom and credit markets still appear strained. At the same time elevated prices for food and fuel are causing concerns among both consumers and Fed officials………

In addition to lowering rates to spur the economy, the central bank has rolled out a series of emergency steps to pump billions of dollars of liquidity into financial markets to beat back a credit crunch. Policy-makers will debate a new liquidity tool — paying interest on bank reserves — on Wednesday…………

Policy-makers also expect the combined effects of the central bank’s rate cuts — which act with a lag — and a $152 billion fiscal stimulus package will provide a boost to the economy in months to come.

All of these so called “solutions” are inflationary. By reducing the interest rate they reduce the value of the currency and hence increase the cost of fuel and other imported items. By printing a wack of money (152 Billion they don’t have) they are further devaluating the dollar. Will the Fed give us hyper inflation?? It is a real possibility. When hedge funds run for cover in oil and commodities they are hedging against inflation. What is your hedge against inflation? What should you do about inflation eating up your equity and savings? We are going to address that in coming posts.

By-the-way, who is getting that $152B? It better not be the financial institutions that got us in this mess – although it sounds like it. We will be watching to see where it goes. Furthermore, recently the Senate said they couldn’t bail out the Banks because the people wouldn’t hear of it (based on polls). Seems like all that has changed in the last week.

Paul Weigel

Could Hypermiling be a solution?
There isn’t much we can do about the price of fuel but there is something we can do about our consumption. A technique called hypermiling (hyper-miling) optimizes your vehicle and your driving habits to maximize your fuel consumption.

Some people have recorded as much as double the mileage using the technique. Some ways to hypermile include reducing drag, accelerating slowly, over-inflating tires, and following closely behind trucks that pull you along.

Fore more information about hypermiling check out http://hypermiling.com/

The biggest story in the news today, as it has been for 5 months, is the price of oil. There has been a lot of disinformation about what is causing the rise in the price of crude. It has increased 25% in the past 4 months. Prime Minister Gordon Brown and G. W. Bush have been calling for OPEC to increase supply in a season when normal consumption is at its lowest (spring). The forecasted economic slow down is expected to further slow demand by 1.5%. As the price increases it becomes out of reach for many buyers with weaker economies and currencies, also reducing demand. OPEC continues to assert that there is adequate supply to meet demand. Saudi Arabia has even reduced supply slightly in response to the slowing demand. So why is the price of oil continuing to climb?

The daily assertions in the media about fears of disruptions in supply are misleading. The real cause of the price inflation is the weakening US dollar. Hedge funds used to take refuge in gold, silver, platinum and other metals because they offered protection against a devaluating dollar. But the large investors see oil as a better hedge against the devaluating dollar, because it is a world-wide consumable. Recently, market pundits have predicted $200. per barrel of oil, which would more than double the price in a year. That doesn’t reflect supply or demand for oil, but the lack of confidence in the US economy precipitated by the sub-prime banking scandal, massive debt and trade deficit, and a costly war.

Here is the crux of the problem. In the short term, oil provides protection from inflation (devaluation of the dollar), but in the long term the increase in the price of oil causes the cost of food and manufactured goods to increase. That is inflation. To protect against inflation investors continue to bid up the price of oil and thereby cause inflation. It becomes a destructive cycle which has the potential to bring a catastrophic world-wide economic collapse. So far there has been little leadership from governments in the west. Thailand and Indonesia have banned exports of rice in the anticipation of the coming problems. They have effectively taken themselves off the world markets. They will grow their own food and supply their own demand at prices their people can afford. Nationalism has been presented in the corporate agenda driven media as the counter-productive, small minded ideals of backward governments. However, it now will protect countries from the whims of the global investor and soften the blow of a potential world-wide financial catastrophe.

The US has been the detonator for this economic explosion but the problems in the world financial markets are equally as severe as in the US. There has been a tremendous increase in the accumulation of wealth. The imbalance this creates is like a 400 pound guy in a canoe with two 50 pound children. The markets have been destabilized by the relative size of the “players”. Greed, and fear have no conscience and the investors who “play” the markets have no moral, ethical or social responsibility. They play for today with little foresight into the implications their actions will have on tomorrow or on others.

Our relatively short experiment with globalization of world markets has put the future of the planet in the hands of people who have no intention of managing it. They neither want the job nor are capable of handling it. Their goals are incompatible with the task. Political leaders have failed to lead because their leadership has been compromised by duplicity. They know they should do something, but they are afraid to end the party. The party being, the amassing of the world’s wealth by a relative few.

The planet faces environmental, and economic problems of monumental magnitude. The resulting social upheaval could cause unimaginable human suffering and loss if there isn’t inspired leadership. The planet can not survive under the current system. It is destructive, oppressive and diabolic and if left uncontrolled will self destruct. The question is, will our leaders mitigate the suffering and loss by taking the necessary but difficult high road; or will they compromise and surrender to pressures and stand on the sidelines as the impact of their compromises ravishes the nations.

There is a new age coming, heralded and ushered in by a company of forerunners. The current pains are but the birth contractions of a new era. More on that in the coming posts.

Paul Weigel

NEW YORK (AP) – Oil prices rose sharply Friday on news that a ship under contract to the U.S. Defense Department fired warning shots at two boats in the Persian Gulf. Retail gas prices as expected rose further into record territory, nearing $3.60 a gallon. Crude prices rose on initial reports that a U.S. ship had fired on two Iranian boats; the news raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. A Navy spokeswoman said the origin of the boats was unclear.

The news was enough to send light, sweet crude for June delivery up to $119.55 before the contract retreated to settle up $2.46 at $118.52 a barrel on the New York Mercantile Exchange.

Every day the excuse to charge more for oil gets more ridiculous than the day before. How it can be justified that the world price of oil should be higher based on a minor incident in the Persian Gulf is a jump over the Grand Canyon. When there isn’t any reason to raise the price of crude, they raise it anyway and call it “Market Sentiment”. What is market sentiment? I have come to believe it is traders wanting to profit from raising the price of oil.

Recently, OPEC said they wouldn’t increase the production of oil because there was enough supply to meet demand. Since I haven’t seen any shortage in Canada or the USA or heard of any around world I have a tendency to believe them (OPEC). So why is oil going up daily? In the last 6 years it has tripled in price. Could it be sub-prime greed? And furthermore where does all that money go. The oil companies haven’t invested in any new oil refineries even though last year they made over 30% on the money they have invested. Are they creating shortages by reducing the capacity to refine the oil they do have? And isn’t 30% return on investment more than enough reason to invest in the business of refining oil?

The key to the oil company’s scheme is to look like they aren’t in control of the price. They claim it is the market that sets prices. What they mean by that is, there are a bunch of guys in a room bidding up the price it would appear for no rational reason. Of course they can’t help that – now can they?

Real market driven pricing isnt’ determined by a handful of people. It can only be measured when there is unbiased competition for demand. But prices aren’t set by demand, but by the perception of demand. It is a handful of traders who decide the price, based on their perceptions of demand. When the price of oil rises rarely is the justification anything to do with demand, or supply for that matter. When one group controls prices and supply they have an unfair advantage in the market place. What we have is not a free market, and there should be intervention world-wide to protect the consumer and our economy from being raped.

When prices where $40 a barrel the oil industry was profitable, at $80 is was outrageous. At $120 per barrel the profits are immoral, but they still want more. They will continue to gorge themselves on oil profits and recently predicted $200 per barrel of oil. Why? Don’t they have enough money? How much more money do they want/need?

The Senate is trying to figure out a way to avoid the collapse of the financial system. Lenders are leveraging for a bail out. But Americans are angry, as they well should be. They don’t want the perpetrators of the problem to “walk” while they take the “fall”.

“Excerpt from (LA Times, April 25, 2008)
Frank’s committee this week approved a Republican proposal to give lenders and loan servicers protection against such lawsuits. But powerful industry groups, such as the Mortgage Bankers Assn., have scorned the proposal.

“It makes me concerned [that] lenders and servicers really aren’t interested in sitting down and negotiating a resolution to these problems,” said Rep. Michael N. Castle (R-Del.), chief author of the GOP proposal.

“Maybe they figure the government will get desperate enough at some point, it’ll throw money at the problem and they can come out with no write-down of these mortgages,” he mused.

“There is no sympathy for anything that smacks of bailout,” said Allen Sinai, chief economist of Decision Economics Inc., who recently testified in favor of the Frank bill. “The outrage has shown up very quickly, and means that at this point the government can only go so far.” (End Quote)

People are aware that the problems they now face were caused by uncontrolled and blinding greed in the financial markets. They want control of their lives back. They shouldn’t have to worry about deals being made on Wall Street that will take from them everything they have worked for most of their lives. They want their Government to act on THEIR behalf.

The lack of government intervention in these areas have stolen hundreds of thousands of average American’s lifetime of work and savings. If it was done with a gun there would be a war. Freedom, is worth defending but some freedom or lack of government control takes other people’s freedom away. The media (the agents of Corporations – proport freedom of the markets) There isn’t freedom of the market. If there was there wouldn’t be a collapse. We wouldn’t pay 3.50/gallon for gas. We wouldn’t pay $150,000 for a gallbladder operation. Prices are controlled not by the market but by a handful of people who profit from their control. There is no free market where the consumer can shop and compare prices in a competitive market. Oil is priced not by the consumer supply and demand but by a handful of people in New York who profit from its rising price. The system we have is not free market – it is tyranny wrapped in idealism.

The government has allowed speculators and financial institutions to gain at the expense of the people, effectively turning the entire country into a labor camp. Housing and oil isn’t the only areas where the balance of power has been allowed to shift far in favor of company’s shareholders and market profiteers. Powerful groups control medical services in American which can transfer the wealth of an entire family into its hands simple by having one medical need in your lifetime. How many family’s have been left with nothing. How free is that?

The system is flawed and no American is immune of being robbed of their saving and financial future as long as the system continues to give certain people more freedom at the expense of others. The people with the authority to intervene didn’t – even when they knew what the outcome would be. That is a breach of trust and crime against the people. The repercussions of the collapse of the housing market has effectively syphoned off billions of dollars from the economy which are now in the hands of the greedy. If the government bails these institutions out, then it will be using your money to further rob you of everything you have worked for. This crisis could have been avoided. But that would have taken someone to stand tall and strong against the corruption. Apparently there was no one. People knew what was going on and did nothing. That is a crime against you and me. The corruption has weakened America and could destroy it if it doesn’t get leaders that will not bow to the power brokers who are destroying our freedom and stealing our wealth.