Bush says "America Addicted to Oil

By Steve Holland

WASHINGTON (Reuters) - President Bush will say "America is addicted to oil" and must develop technologies to address soaring gasoline prices in a State of the Union speech on Tuesday night that lays out a forceful U.S. role in the world and an election-year agenda for Republicans.

In excerpts of the 9 p.m. EST speech released by the White House, Bush argued the United States must remain aggressively engaged around the world, rejecting critics who feel Washington is provoking ill will and should pull back.

With oil prices close to record levels and Exxon reporting record profits of $10.7 billion, the former oilman will highlight the need to improve technologies in order to reduce U.S. oil imports.

http://tinyurl.com/dw22a

History points to higher rates

by Puru Saxena

The New Year has started with a loud bang with global equity markets charging ahead. Investors worldwide seem to be celebrating the Fed's announcement, which stated that its policy outlook "was becoming considerably less certain", the number of additional rate hikes to control inflation "probably would not be large" and the future rate decisions "would depend on the incoming data".

The above statement was perceived as a rather soft message and investors now believe that the interest-rate hikes are about to end. On this expectation, the markets reacted sharply and equities as well as bonds rallied, the US dollar sunk and precious metals rebounded after the recent sell-off.

In my opinion, the markets over-reacted to this news as I feel that the Fed funds rate is going to rise significantly in the future. Perhaps, the Fed will pause momentarily after the Fed funds rate is pulled up somewhat more but the overall trend for interest-rates is now up. Take a look at the chart presented here, which shows the direction of the Fed funds rate since 1955. The Fed funds rate went up from 1955 to 1981. Thereafter, the cost of money (interest-rate) declined for the next 23 years. I believe this cycle reversed when the Fed funds rate bottomed at 1% and we are now in the early stages of a major uptrend, which will probably last for years.

http://www.safehaven.com/article-4448.htm

A Law abiding bull market

By Dan Denning

The "peak oil" debate keeps raging on the message boards
and blogs of the Internet. Some folks argue that we're
running out of the precious black goo. Others advance a
more hopeful forecast, or predict that innovation will
spare future generations from the pain of exhausted
hydrocarbon supplies. Both camps present compelling ideas,
but neither camp presents an idea that would prevent oil
prices from soaring much higher than they are currently.

In the end, doesn't it really come down to the Laws of
Physics? Such is the central argument of James Kunstler's
provocative book, "The Long Emergency: Surviving the
Converging Catastrophes of the 21st Century."

The following passage presents the essence of Kunstler's
viewpoint:

"The invention of the steam engine (a magical product of
human ingenuity) provoked the invention of other new
machines, and then of factories with machines, which
prompted the need for better indoor lighting, which
stimulated the use of petroleum, which produced brighter
light than candles (and was much easier to get than sperm
whales), which provoked the development of the oil
industry, whose oil was found to work even better in the
engines than coal did, which led to the massive
exploitation of a one-time endowment of concentrated stored
solar energy, which we have directed through pipes of
various kinds into an immense flow of entropy, which has
resulted in fantastic environmental degradation and human
habitat overshoot beyond carrying capacity."

Let me pause here to say I want to be somewhat skeptical of
Kunstler's claim there is such a thing as a physical limit
to the number of human beings the earth can support. People
have been saying this ever since Thomas Malthus. And
they've been wrong.

But it's important to note that Kunstler is saying that the
entire world cannot live at the same "energy density" as we
in the West currently enjoy. He's not suggesting we'll run
out of oil next year, merely that we will run out of
"cheap" oil very soon. Kunstler argues that the laws of
physics – in particular, the laws of thermodynamics –
preclude a growing global reliance on fossil fuels.

Hydrocarbons, for example, represent billions of years of
stored-up solar energy. And yet, we humans will likely
exhaust our endowment of hydrocarbons in less than 300
years. As this epic depletion proceeds, hydrocarbon fuels
will become much more expensive, thereby spurring
innovation.

Scientific breakthroughs, for example, have already enabled
us to extract "syncrude" from Alberta's tar sands. Future
breakthroughs might enable us to extract oil from
Colorado's oil shale in an economically and environmentally
viable manner. Clearly, the road to innovation will be
paved with high and rising energy prices. Unfortunately,
according to Kunstler, global fossil fuel consumption is
already bumping up against the earth's physical
limitations. He writes:

"It is assumed now that human beings, prompted by the
market, will employ ingenuity to discover a substitute for
oil and gas, once the price starts to ramp up beyond the
'affordable' range. This assumption is apt to prove
fallacious because it ignores the fact that earth is a
closed system, while the laws of thermodynamics state that
energy can't be created out of nothing, only changed from
low entropy to high entropy, and that we have already
changed the half of our oil-endowment that was easiest to
get into dispersed carbon dioxide, which is now ratcheting
up global warming and climate change, which might well put
the industrial adventure out of business before human
ingenuity can come up with a substitute for oil. The solar
energy stored for millions of years in oil will now be
expressed in higher temperatures, more severe storms,
rising sea levels, and harsher conditions for the human
species, which, despite its exosomatic technological
achievements, remains a part of nature and subject to its
laws.

I'm not so sure that I agree with Kunstler's grim prognosis
for humanity, but I do find the central elements of his
argument pretty compelling, almost irresistible. In a
closed system, nothing can prevent entropy. (This is why
all closed political systems like communism die. Without
new inputs – energy, ideas, resources – they cannot sustain
themselves).

So given that the Earth is essentially a closed system,
physically speaking, what is the way out of Kunstler's
dilemma? Well, maybe there is no way out. But if there is
one, it is the variability of human thought. Is it not
possible that we might find better ways to use the
hydrocarbons that remain? Or devise more practical ways of
using renewable energy resources?

Yet, as Kunstler points out, human thought is also
constrained by the laws of physics. For example, Man
cannot, through intense thought and clever innovation,
convert a Bassett Hound into a Boeing 757...or a pile of
computers into pile of caviar. Nor can clever thought
replace the one trillion barrels of crude oil we have
already extracted from the earth's crust...but it can lead
to the more efficient use of our finite natural resources.

Even so, continuing to innovate does not preclude the
possibility of $100 oil...or $263 oil, as one professional
investor recently predicted. In fact, the two go hand in
hand. It seems a pretty safe bet that we will innovate ONLY
if/as/when hydrocarbon fuels become unbearably expensive.

How high could crude oil go? Bill Browder of Hermitage
Capital Management comes up with a nice specific number,
$262. Browder and his team outlined six scenarios where oil
could spike. An article at CNN.Money.com reports:

"To come up with some likely scenarios in the event of an
international crisis, his team performed what's known as a
regression analysis, extrapolating the numbers from past
oil shocks and then using them to calculate what might
happen when the supply from an oil-producing country was
cut off in six different situations. The fall of the House
of Saud seems the most farfetched of the six possibilities,
and it's the one that generates that $262 a barrel.

"More realistic—and therefore more chilling—would be the
scenario where Iran declares an oil embargo a la OPEC in
1973, which Browder thinks could cause oil to double to
$131 a barrel. Other outcomes include an embargo by
Venezuelan strongman Hugo Chavez ($111 a barrel), civil war
in Nigeria ($98 a barrel), unrest and violence in Algeria
($79 a barrel) and major attacks on infrastructure by the
insurgency in Iraq ($88 a barrel)."

Browder's name sounded familiar to me. And then I
remembered. Back in 2001, when I recommended Gazprom to my
Strategic Investments subscribers, Browder was about the
only Western analysts who understood the importance of
Russian natural gas to Europe's economy. And Browder was
years ahead of everyone in realizing that energy would be
viewed by governments as a strategic asset, and used as a
policy weapon.

Other people are catching onto the theme now. Did you
notice Saudi Kind Abdullah paid a visit to China this week,
with all his critical oil and defense ministers in tow?
Saudi Foreign Minister Saud al-Faisal said, "China is one
of the most important markets for oil and Saudi oil is one
of the most important sources of energy for China."

Sounds like a strategic partnership in the making, no?

Chinese Foreign Minister Li Zhaoxing said, "There is a
great deal of understanding between the two countries on
all issues, including the Middle East, Iraq, and the
Iranian nuclear program." I bet there is. The Saudis don't
need customers. But they do need protectors. And who better
to court than a rising economic and strategic power?

Furthermore, China and Saudi Arabia may have more in common
than China and America. Both China and Saudi Arabia are run
by unelected elites who are free to set a national energy
policy and favor certain national oil companies (please
don't send me e-mail that the same is true of the U.S. with
Bush, Cheney, and Halliburton...believe me, I'm aware of
the irony)

Writing on the growing importance of national energy
companies as instruments of national grand strategy, Pam
Boschee of Offshore Magazine states, "It is possible that
NOCs [national oil companies] may gain the upper hand as
geopolitical forces become increasingly critical. The
influence of combining political, economic, security,
defense - and petroleum - may indeed create a volatile
concoction."

Indeed, which is one more reason why the bull market in
crude oil will last until we figure out a way to live
without the stuff. The Laws of Physics would not have it
any other way.

[Joel's Note: Every time a light is switched on somewhere
in the world, another drop of oil is gone forever. There is
no denying that supply is diminishing. Any one of the
scenarios that Dan cites above could see us looking back on
the days of $65 oil with fondness as it skyrockets upwards.
So what to do? Dan Denning's Strategic Investment
newsletter keeps you on the money with news on oil, housing
and a host of other macro-economic insights. You may not be
able to change the laws of physics, but you can at least be
prepared for the outcomes. Learn all about staying ahead
right here:

Strategic Investments
http://www.agora-inc.com/reports/DRI/EDRIFB05

Investing in Solar Energy ?

We currently cover three companies in the solar market: Evergreen Solar (ESLR), SunPower (SPWR) and Suntech Power (STP). Although we believe that a balanced energy technology portfolio should include all three companies, we would prioritize purchases in the following order:

1. Suntech Power: Of the three, we are most attracted to Suntech due to its low-cost structure. We believe that reducing ASPs will be essential to growing the industry and are therefore inclined to favor companies with the most margin leverage. We expect that Suntech will be most likely to lead pricing declines, helping to cement its position as one of the industry’s leading players. In addition, we expect that China will emerge as one of the largest and most important markets for solar within the next few years. Suntech’s position in China should give it the best advantage to be a leader in the local market. Suntech has both new company and Chinese company risks, but we believe that the opportunity outweighs the risks.

2. Evergreen Solar: We continue to like Evergreen Solar based on its proprietary string-ribbon manufacturing technology, which uses less silicon and incurs lower processing costs than standard wafer manufacturing techniques. Evergreen’s growth opportunity through its EverQ joint venture is impressive, although the recent addition of REC changes the profile significantly. While REC lowers execution risk, its share of the joint venture reduces the profit potential for Evergreen. We are assuming that the company has other growth opportunities that have not been disclosed yet to make up for this decrease. Obviously, this assumption raises the risk to our estimates.

3. SunPower: We initiated coverage of SunPower with a Hold based on valuation. We like SunPower’s technical leadership and believe that its high efficiency products will continue to be market leading. Although we believe that SunPower’s manufacturing process is more expensive than others, the high efficiency of SunPower’s products allow for more energy production from a smaller amount of materials. As with Suntech, SunPower has new company risks as a newly public company. Unfortunately, we believe the stock is ahead of itself and we will be watchful for a better entry point.

http://energystockblog.com/article/5512

Fed raises rates 25 basis points

Release Date: January 31, 2006
For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/2 percent. Although recent economic data have been uneven, the expansion in economic activity appears solid.

Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives. Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.

( Link here )

Spain's Repsol slashes reserves by 25%

Repsol YPF SA, Spain's biggest oil company, will write off about 25 percent of its gas and oil reserves because of higher taxes in Bolivia and deteriorating production from deposits in Argentina.
Repsol will eliminate 1.25 billion barrels of proven oil equivalent and its audit committee hired independent advisers to help review circumstances leading to the writedown, Chairman Antonio Brufau said in a call today with analysts. The Madrid- based company's shares fell 7.9 percent in Spain, headed for their largest one-day percentage drop since 1991.
``They really must increase exploration now, and that means more investment,'' said Antonio Gallego, who helps manage the equivalent of $6.7 billion at Gesfinmed in Alicante, Spain, including Repsol's shares. ``At the same time they're trying to discover if there was any manipulation of data.''

http://www.bloomberg.com/apps/news?pid=10000085&sid=arRN_UlllVtY&refer=europe

Iran already has the bomb

Rafi Eitan suspects that Iran already has enough enriched uranium fissionable material to manufacture at least one or two atom bombs of the Hiroshima type. "Otherwise Iranian President Ahmadinejad would not have dared come out with his declaration that Israel should be wiped off the map," repeating it in various versions. His efforts at denying the Holocaust in which six million Jews were slaughtered prove that there is method in Ahmadinejad's madness. "Don't treat him like a madman," Chief of General Staff Dan Halutz recently cautioned.
Eitan's assessment of the situation is especially important because of his extensive intelligence experience in Israel's struggle for its existence, even before its establishment in 1948. Eitan was among those that laid the operational foundations for the Shin Bet (Israel Security Agency) and the Mossad.

http://tinyurl.com/dw8nf

Economists, Investors Clash on Fed Rate Outlook

Bill Gross, manager of the world's biggest bond fund, says Treasuries are a ``good buy'' because the Federal Reserve may reduce interest rates this year.
Neal Soss, chief economist at Credit Suisse Securities LLC, says bonds may add to last week's declines, the biggest since October, because the U.S. central bank will increase borrowing costs through 2006.
Gross, who heads the $90 billion Total Return Fund for Newport Beach, California-based Pacific Investment Management Co., and Soss, an economist on Wall Street for more than 20 years, are part of a clash between investors and analysts on the direction of the $4 trillion market for U.S. government debt. Treasuries lost 0.23 percent so far this month after returning 2.8 percent last year, the worst performance since 2003.

http://tinyurl.com/btnaz

Prospect of bumper profits lifts the oil giants

It is arguably the biggest week for results of the year so far and the market spent most of yesterday placing bets on who the winners and losers are likely to be. And it doesn't take a post-graduate finance degree to work out that Royal Dutch Shell is likely to be a big winner.

All the oil majors are likely to report bumper profits this year, with demand for oil and oil-related products showing no sign of abating, just as the price of oil shows no sign of a meaningful fall. For most of the last quarter, oil has traded close to $70 a barrel - not a bad price when most integrated oil majors are geared up to make money even if it trades at $10 per barrel.

http://tinyurl.com/dpneg

The Greenspan Legacy

January 31, 2006, marks the end of a financial era. The longtime chairman of the Federal Reserve, Alan Greenspan, will retire after 18 years at the helm of the United States' central bank. Widely lionized at the pinnacle of his career, Greenspan's legacy will profoundly affect investors worldwide for many years to come.

As Greenspan's tenure as the most powerful man in the financial universe is debated among investors today and historians tomorrow, his many decisions will be dissected and evaluated. But I fear most of this debate will overlook the most foundational and crucial issue. Before Greenspan's actions are considered, the very notion of the Fed itself ought to enter the limelight.

The Federal Reserve is not a capitalistic entity compatible with free markets. Instead it functions just like the miserably failed old-school command-and-control communism model. The core philosophy of the Fed and its Federal Open Market Committee that controls short-term interest rates is that mere mortals meeting in secret like a conspiracy cabal are better suited at setting the price of money than the free markets.

( Full story here )

Regulators Watchful on Currency Risk

By Lee Woo-cheol
Deputy governor of Financial Supervisory Service

Amid rapid appreciation of the Korean won in recent days, some are wondering out loud if it is a harbinger of choppy waters ahead for the economy.

Because exports have more or less pulled the economy along since the so-called “credit card crisis” sharply dampened domestic demand in 2002, the potential effect of lasting appreciation of the won on the exporters and more broadly the health of the economy certainly warrants our attention.

The weak dollar is one obvious reason for the strong won. The dollar began to lose ground against the yen and other major Asian currencies soon after the U.S. Federal Reserve hinted a pause in interest rate hikes. The weakening of the dollar has taken place against the backdrop of renewed concerns about structural weaknesses in the U.S. economy such as the widening current account deficit, widespread expectations of revaluation of the Chinese yuan versus the dollar, and China’s purported plans for diversifying its vast dollar reserve holdings.

http://tinyurl.com/7rvxq

SILVER, GOLD, COPPER & ZINC ALL SOARING!

We are probably in a better position that even I can realize, so forgive me for my excitement and wordiness today, as I try to understand, and explain, our good fortune!

Silver, exploding to new highs: $9.50/oz. now!
Gold, exploding to new highs: $567/oz. earlier today.
Copper, exploding to new highs: $2.20/lb., showing no sign of slowing; with world stocks at 2 days inventory!
Zinc, exploding to new highs: $1.04/lb. up nearly 100% in 6 months; and ready to outperform for several years!

You see, my largest investments are silver stocks, and since silver is often found with copper and zinc, these "added bonuses" just got a lot better--so much better I can hardly keep up with it, mentally.

http://tinyurl.com/7ob2f

Canada's dollar reaches 14-year high on outlook for oil prices

The Canadian dollar reached a 14-year high on speculation that strong demand for Canada's natural resources such as oil and metals supports the currency's value.

Even with crude oil about $3 below its late August record of $70.85 a barrel, the price has doubled in two years, and it may rise this week on concern about a cutoff of supplies from Iran, the world's fourth-largest producer. Canada is the seventh- largest producer, and oil and other commodities account for about 35 percent of Canadian exports.

``We have a pretty strong fundamental demand picture in oil,'' said Carolyn Kwan, an economist with Scotia Capital Inc. in Toronto. Current oil prices are sustainable and not merely the result of a ``temporary spike due to an event like a hurricane,'' Kwan said.

http://tinyurl.com/cuowp

Venezuela urges cut in oil production

OPEC has no obvious reason to cut its oil output, the group’s president said today, even though Iran and Venezuela have cited excess supply in pushing for a reduction.

Edmund Daukoru, who is also Nigeria’s oil minister, told reporters that he didn’t see any reason why the members would vote for a cut at tomorrow’s meeting - echoing earlier sentiment from Saudi Oil Minister Ali Naimi, one of OPEC’s most influential voices.

http://breakingnews.iol.ie/news/story.asp?j=3634890&p=36349x5

Oil demand to spurred by Asia Growth - Naimi

Saudi Arabia, the world's largest oil producer, said economic expansion in China and India will spur additional demand for energy this year.
``Growth, economic growth'' is driving demand, Ali al-Naimi, Saudi Arabia's oil minister, told reporters late yesterday in Vienna, where OPEC will be meeting to decide about crude production levels. ``Obviously, economic growth is continuing.'' He didn't offer specifics.

http://tinyurl.com/9b79n

Oil pushes over $68 as Iran talks overshadow OPEC

SINGAPORE (Reuters) - Oil prices climbed more than half a dollar to above $68 a barrel on Monday, shrugging off a likely rollover in OPEC' production to focus on key talks over

Iran's nuclear program and more attacks in Nigeria.

U.S. light crude climbed 51 cents to $68.27 a barrel after soaring $1.50 a barrel on Friday. Prices are up more than $7 this year and touched $69.20 a barrel a week ago, the highest since Hurricane Katrina hit the U.S. Gulf Coast last summer.

( Full story here )

Butch Cassidy of banking

by Bill BonnerEditor,
The Daily Reckoning
January 27, 2006

The Daily Reckoning PRESENTSThis coming Tuesday, January 31 will see Greenspan pass the torch to Ben Bernanke as the head of the Federal Reserve. Let's take a quick look at the job Helicopter Ben will be taking over...
"Alan Greenspan is the greatest economist of our time...probably the best central banker of all time."
Thus saith a French economist this morning interviewed on a radio talk show this morning. Your editor, also a guest on the show, was asked to respond. What follows is not what he said (because when he is called upon to speak in public he tends to hem and haw like a teenager asking for a date.) But this is what we intended to say:
"Yes, we agree. Alan Greenspan is probably the best central banker that ever lived...in the sense that Butch Cassidy was a great bank robber or Mrs. Purdy ran a great bordello. What is great about him is that he really understood central banking and appreciated it; the way a swindler admires a really good flimflam."

( Full story here )

Gas prices may hit record

By Gary Richards
Mercury News
January is usually a month when filling up your car or SUV is fairly painless, when prices are as cheap as they'll be all year.
Not this time. Average California prices have risen 12 cents in the past week -- 29 cents since Christmas -- and are 54 cents higher than a year ago, fueled by global events that are making traders jittery. And a growing number of analysts predict that 2006 could be the year that shatters the record set 25 years ago.
From Iran to Nigeria to China to the Bay Area, supplies could tighten even as demand rises. Gas for $3 a gallon

http://tinyurl.com/blqs5

World Oil prices to remain high: UAE oil minister

Abu Dhabi, Jan.29th,2006 (WAM) -- The UAE expects the world oil prices to remain high driven by vibrant growth in global economy and projected increasing demand of 1.5 million barrels per day (mbpd) in 2006.UAE Minister of Energy Mohammed bin Dhaen Al Hamili said the Organisation of Petroleum Exporting Countries (OPEC) would take in its next meeting in Vienna the right decision on the output ceiling in the second quarter of the year in light of the current oil prices on world markets.

http://tinyurl.com/al2h9

Ready for $262/barrel of oil ?

Two of the world's most successful investors say oil will be in short supply in the coming months.
By Nelson Schwartz, FORTUNE senior writer

DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.
That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.

http://tinyurl.com/9hjug

CIBC World Markets: Oils sands to become increasingly valuable source of Global supply

(News piece is couple of weeks old. But relevant to oil sands investors)


TORONTO, Jan. 10 /CNW/ - An increasingly tight oil supply will continue to force crude prices higher and make Canadian oil sands the single biggest contributor to net new global supply by the end of the decade, states a report released today by CIBC World Markets.
In its Monthly Indicators report, CIBC World Markets notes that despite a near doubling in crude prices over the last two years, non-OPEC production failed to increase in 2005. This limited the total increase in global supply to less than a million barrels a day.

http://tinyurl.com/7stha

India & China to bid jointly for overseas energy assets

In an attempt to secure long-term energy supply for their fast-growing economies, India and China on Thursday agreed to greater cooperation while bidding for oil & gas assets abroad.
Petroleum Minister Mani Shankar Aiyar said that the two countries, in dire need of meeting growing demand for energy, could help keep energy costs down by avoiding making rival bids.
"Both China and India recognize that unbridled rivalry only results in the seller of the assets being benefited", Aiyar told reporters in Beijing yesterday. "We will see through practical experience the advantages of going together rather than going separately".

http://www.indiainfoline.com/news/news.asp?dat=73976

US cautions India against Syrian oil deal

Saying Syria was on "the wrong side of history", the US has cautioned India against going ahead with its decision to buy a Syrian oilfield along with China.
But US diplomats insist this is no pressure tactic on New Delhi.
"Our views on Syria are well known. A communication was made from our side to the Indian government early December conveying our objections to the oil deal," US embassy spokesman David Kennedy said.

http://www.hindustantimes.com/news/181_1610701,0005.htm

California Housing starts Fall for the first time in 10 years

By Annette Haddad, Times Staff Writer
New home construction in California fell last year for the first time in 10 years and could drop more sharply this year, according to a report released Thursday that provided the latest sign of a cooling real estate boom.Residential permits totaled 207,200 last year, the second-highest level in 16 years but 3% below 2004's rate, the California Building Industry Assn. said. The trade group blamed the decline on strict regulations that limited construction.

http://tinyurl.com/9uc62

The Proposed Iranian Oil Bourse

by Krassimir Petrov

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms—usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.
Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world’s gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960’s was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ’s Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of “severing the link between the dollar and gold”, in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond— the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would want to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have went into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished—he had successfully defended the U.S. dollar, and thus the American Empire.

( READ THE REST OF THE STORY AT THE FOLLOWING LINK )

http://www.energybulletin.net/12125.html

GDP growth at weakest in three years

By Glenn Somerville

WASHINGTON (Reuters) - U.S. economic growth slowed sharply in the fourth quarter to the weakest pace in three years as consumers spent less robustly, growth in home building eased and businesses were less eager to boost investments, a government report on Friday showed.

( Full story here )

Oil boom spurs gold demand in Gulf

DUBAI: Gulf Arab demand for gold and diamond jewellery will surge in 2006 driven by soaring disposable incomes triggered by booming crude oil prices and flamboyant tastes, jewellers and officials said on Thursday.

Gulf Arab visitors from oil-rich states such as Saudi Arabia and Russia are pouring into the desert emirate of Dubai to shop for discounted, tax-free luxury goods at huge shopping zones such as the Mall of the Emirates, which even has a ski slope, and the Gold Souk in the labyrinthine historic downtown.

http://tinyurl.com/d7pwe

Things Just Got Worse

NO, MAKE IT A LOT WORSE. Word just came out that Kuwait, long regarded as home to some of the world's largest reserves of petroleum, may possess only half the amount of oil reserves that it officially has been stating for many years.

According to a restricted report issued by the authoritative industry newsletter Petroleum Intelligence Weekly (PIW), internal Kuwaiti records reveal that the nation's oil reserves are far below the officially stated amount of about 99 billion barrels. Kuwait's reported 99 billion barrels, if they were really there in the ground, would make up about 10% of world's reported oil reserves.

The PIW report is based upon data circulating within the top echelons of the Kuwait Oil Co. (KOC). KOC is the upstream arm of state-owned Kuwait Petroleum Corp. KOC has primary responsibility for conducting exploration, drilling and production from Kuwait's oil fields. The PIW report claims that Kuwait's remaining proven and nonproven oil reserves total about 48 billion barrels, or 51 billion fewer barrels than previously advertised.

By way of comparison, the estimated remaining proven oil reserves for the United States total about 22 billion barrels. Estimates for the North Sea are about 17 billion barrels. So a downward adjustment of 51 billion barrels by the Kuwaitis leaves a good deal more than twice what remains in the United States, and three times what is in the North Sea.

Yet another way of stating the matter, and in a macro sense, the amount of estimated world oil reserves just fell by 5%. This 5% drop in reserves is the equivalent of almost 20 months worth of total cumulative worldwide oil production and consumption, based on the current world oil use of about 84 million barrels per day. From the standpoint of the world reaching the absolute Peak Oil point, we now live in August 2007, not January 2006. And as the Mogambo Guru would say, "Thanks a hell of a lot, guys."

According to the PIW report, the official public Kuwaiti figures do not distinguish between what are known as "proven," "probable" and "possible" reserves. The PIW report stated that the Kuwaiti data indicate that, of the current remaining 48 billion barrels of proven and nonproven reserves, only about 24 billion barrels are so far fully proven (That is, slightly more reserves than in the States).

The rest of the Kuwaiti reserves are probably out there, but we will know only after someone drills and completes a series of wells. And if the wells are dry, whoops, there goes another 2.5% of the world's oil reserves. And in that case, it may as well be 2008, from the standpoint of achieving the milestone for mankind known as Peak Oil. The future is here.

http://www.howestreet.com/story.php?ArticleId=1959

Home Resales Fall to Lowest Since March 2004

Jan. 25 (Bloomberg) -- Sales of previously owned U.S. homes fell more than forecast last month to the lowest level since March 2004, evidence of the end of a five-year housing boom that will slow the economy.

Purchases declined 5.7 percent to a 6.6 million annual rate from November's 7 million, the National Association of Realtors said today in Washington. Sales, which have been slowing from the record monthly pace reached in June, still finished 2005 at an all-time high of 7.072 million.

http://tinyurl.com/8kvww

Californians May Be First To Feel Home Loan Pinch

For better or for worse, California often gets first dibs on changes in the national real estate market and in what could be an example of the worst case side of that trend, some mortgage shoppers in the Golden State may be the first to be underwritten out of the home buying market.

http://realtytimes.com/rtcpages/20060125_homeloan.htm

GREAT EXPECTATIONS!

by Puru Saxena
Editor, Money Matters
January 25, 2006

REALITY – The human race is expanding at an alarming rate, which is starting to assert immense pressure on our planet. Global warming, extreme weather patterns, rising geo-political tensions and unrest – these are all symptoms of economic and social stress. Take a look at Figure 1, which shows the explosion in world population and gives us an idea of what lies in our future. At present, world population stands at 6.5 billion and roughly 50% of humans reside in Asia. In 1950, our planet was home to (only) 2.5 billion people, which means that world population exploded by 2.6 times over the past five decades! According to the conservative estimates by the US Census Bureau, our planet will add another billion people in a decade and world population will grow to 9.1 billion by 2050.

http://tinyurl.com/9fan2

Economists predict a sliding dollar

By Tim Weber

China and US consumers will determine the fate of the global economy in 2006, according to experts at the World Economic Forum.

http://news.bbc.co.uk/1/hi/business/4647928.stm

War against Iran may be a necessity

Gerard Baker

THE UNIMAGINABLE but ultimately inescapable truth is that we are going to have to get ready for war with Iran. Being of a free-speaking, free-thinking disposition, we generally find in the West that hand-wringing, finger-pointing and second-guessing come more easily to us than cold, strategic thinking. Confronted with nightmarish perils we instinctively choose to seize the opportunity to blame each other, cursing our domestic opponents for the situation they’ve put us in.

http://www.timesonline.co.uk/article/0,,19269-2011570,00.html

Vision for meeting energy needs beyond oil

by Jeroen van der Veer

On top of concerns about high oil prices now comes the fear that we have reached “peak oil” and that global oil output will start to decline. Have we? If oil has peaked, do we face a future of growing energy shortages, rising prices and international conflict for supplies?

http://www.energybulletin.net/12327.html

Energy prices seen slowing U.S. economy

NEW YORK, Jan 24 (Reuters) - Energy prices are already having an impact on the U.S. economy and will contribute to slower U.S. growth in 2006, Gail Fosler, executive vice president and chief economist of the Conference Board, said on Tuesday

http://tinyurl.com/7zdg5

India gives green light to Gold mutual funds

16:09:57 GMT, 25 January, 2006
Indian consumers will soon be able to invest in gold on paper following a recent amendment by the Securities and Exchange Board of India (SEBI). The SEBI yesterday (January 24th) tweaked its regulations so that mutual funds can invest in gold and gold-related instruments.

http://www.gold.org/value/news/article/3372/

The Great Alberta Gold Rush

Canada is a modest and unassuming place when compared with its great big neighbour to the south. But now it has plenty to boast about: world-beating oil reserves in Alberta which are finally being brought into production after decades of talk

http://news.bbc.co.uk/1/hi/business/4649580.stm

Oil resumes rise after fall on US stock data

By Barbara Lewis
LONDON (Reuters) - Oil prices rose on Thursday, recovering from three days of selling, as persistent worries about the fragility of international supplies offset the impact of a short-term surplus of crude.
U.S. light crude rose 21 cents to $66.06 a barrel by 1050 GMT, while European Brent crude traded 37 cents higher at $64.6l.
After U.S. inventory data showed much bigger than expected rises in stocks of refined products, prices on both sides of the Altantic fell more than a dollar on Wednesday.
"The market is well supplied," said Alexandre Kervinio of SG Commodities in Paris. "But the market has been buying in the dips. The focus is on geopolitics."

http://tinyurl.com/cw447

Iraq's Oil industry is a long way from recovery

By Mariam Karouny
BAGHDAD (Reuters) - Sabotage and storms have demolished Iraqi hopes of lifting oil exports from their lowest level since the U.S.-led invasion and highlighted the scale of the challenge facing a new government and oil minister.
Insurgents blew up pipelines from Iraq's northern fields on Wednesday, halting the flow of oil to Turkey. On Thursday high winds and swells stopped loadings in the south.
That means another month of exports grinding along near one million barrels per day, robbing Iraq, which sits on the world's third biggest oil reserves, of badly needed revenue to rebuild.

http://tinyurl.com/8cwsb

Silver rises on ETF talks

LONDON/NEW YORK, Jan 25 (Reuters) - Silver prices rose almost to a 19-year high on Wednesday on fund buying amid talk of a silver exchange-traded fund potentially getting closer to approval, while platinum touched its highest-ever level.

http://tinyurl.com/dfhom

Oil little changed after Saudi says Supply is sufficient

Jan. 26 (Bloomberg) -- Crude oil was little changed near a one-week low in New York as the Saudi Arabian oil minister said global supply was ``more than sufficient'' to meet demand.
Oil Minister Ali al-Naimi, who sets policy in the world's largest exporter, told reporters that global oil inventories are rising and the market is ``in good shape.'' Prices last week rose to the highest since September on concern a dispute over Iran's nuclear research program and attacks on oil facilities in Nigeria may threaten supply.
``The Saudis want to calm market fears that supply is insufficient,'' said Dariusz Kowalczyk, senior investment strategist at CFC Seymour Ltd. in Hong Kong. ``They think that prices are pretty high and they're telling people they think there's enough oil around.''
Oil for March delivery traded at $65.98 a barrel, up 13 cents, in electronic trading on the New York Mercantile Exchange at 2:01 p.m. Singapore time. Earlier, it traded at $65.31, the lowest since Jan. 19.
Yesterday the contract fell $1.21, or 1.8 percent, to close at $65.85 a barrel after U.S. fuel inventories rose for a fourth straight week.
http://tinyurl.com/a5qhy

Crude oil falls to 1 week low

Jan. 26 (Bloomberg) -- Crude oil fell to a one-week low in New York after a government report yesterday showed U.S. fuel stockpiles increased for a fourth straight week.

Inventories of distillates, which include heating oil and diesel, gained more than twice as much as expected to reach a two-year high. Gasoline futures fell the most in three months after demand eased and a jump in supplies boosted stockpiles to the equivalent to 24.8 days of demand.

http://tinyurl.com/b993r

Canadian oil sands profits up 63%

CALGARY — Annual profits at Canadian Oil Sands Trust jumped 63 per cent to $831 million and cash flow topped the $1 billion mark, the big oil sands operator reported Wednesday.

Meanwhile, the owner of the biggest chunk of the Syncrude oil sands joint venture in northern Alberta announced its second straight quarter of doubled cash distributions worth $1 per unit thanks to record oil prices.

http://tinyurl.com/82gmb

Peak oil crisis

The world moves quickly these days. Since the New Year, oil has risen by more than $7 per barrel and currently is in sight of the all-time high of $70 a barrel. Cold weather in Eastern Europe and threats of supply disruptions from Nigeria and Iran are raising the possibility of an economy-threatening spike in oil prices later this year.

How high would oil prices have to go to before serious economic consequences begin? From our experience in 2005, we know $3 a gallon gasoline won't do it. Gasoline consumption in the US actually increased a bit during the past year despite much higher prices and numerous lengthy supply interruptions caused by the various hurricanes.

http://www.fcnp.com/547/peakoil.htm

Kuwait's oil reserves cut in half.

LONDON, Jan 20 (Reuters) - OPEC producer Kuwait's oil reserves are only half those officially stated, according to internal Kuwaiti records seen by industry newsletter Petroleum Intelligence Weekly (PIW).

"PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records," the weekly PIW reported on Friday.

It said that according to data circulated in Kuwait Oil Co

(KOC), the upstream arm of state Kuwait Petroleum Corp, Kuwait's remaining proven and non-proven oil reserves are about 48 billion barrels.

http://tinyurl.com/eyf3q

Oil for Delivery in 5 Years Rises on supply concerns

Oil traders are paying record prices to get crude almost five years from now, reflecting increasing doubts the oil boom will go bust.

New York Mercantile Exchange futures contracts for December 2010 ended last week at $64.45 a barrel, the highest yet for that month. The price has risen 68 percent in the past year as investors speculated on further gains and refiners sought to lock in the cost of supplies. Buyers of futures contracts are guaranteed oil deliveries at a set price and agreed-upon date.

http://tinyurl.com/9mctj

Kuwait's biggest field starts to run out of oil

This is a few months old, but astonishing nonthe less.
-Joe


By Peter J. Cooper
KUWAIT: It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field's 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate. Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields.

http://tinyurl.com/9xgoa

Welcome to ViewFromThePeak - Energy Opportunities

I was introduced to peak oil a few months ago. Over the course of last few months, I have become a believer. A believer in the sense that a peaking of oil in the near future looks real in my mind ( if it hasn't happened already ). Being a person with an optimistic outlook, I refuse to buy into the end of humanity mindset of some of the other peak oil believers. In starting this blog, I would like to use this for sharing information on how to survive and possibly thrive in a world that is past peak oil. How to possibly protect your family and your lifes savings in the coming crisis. I would also like to use this forum to spread the awareness about peak oil amongs the populace of the world. Even though a crisis looks imminent and unavoidable, I believe human kind would use their ingenuity to continue on their path to progress in a post peak oil world.