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WEEKLY WONK

Originally Published: 12/6/2014

The Low Price of Gas:  We all know that the price of gas has fallen a lot. Actually, it’s fallen almost 40% since June, from over $115 a barrel to below $68 a barrel. (Reuters) We think that’s great, right? Maybe not. What drives down the price? Well, there’s worldwide production, which has increased significantly over the past few years. The U.S.’s number 1 export is now oil. (TWW, Oil Prices, 4/27/13) Most of this increased production is from oil shale “which is expected to add about 1 million barrels a day of oil production this year with an additional 1 million barrels a day in 2015.” Production is from the Bakken Oil Field. (Facts About the Keystone XL Pipeline) The glut of oil, as well as a lower use, are 2 main reasons for oil prices declining.

 

Recently the Organization of the Petroleum Exporting Countries (OPEC) decided not to cut petroleum production, which doesn’t make much sense given the drop in price. Usually producers lessen production when prices are low, which drives prices back up. The NY Times opined that this indicates “the diminishing clout of the organization.” Maybe. And maybe they are deliberately trying to wipe out oil shale production, which is very expensive. When prices get this low, oil shale production is no longer profitable.

 

Then there’s the tie-in to Wall Street and speculators. We’ve known for a long time that speculators account for about 30% of oil trading in commodity markets. Producers and end users account for the other 70%. (McClatchy) Generally a decrease in the price of oil signals an economic slowdown. This can have a destabilizing effect on financial markets. According to Reuters, OPEC’s decision spurred Pierre Andurand, “whose $350 million [hedge] fund made an 18% return last month by betting on the oil price falling,” said that Saudi Arabia was no longer trying to control supplies in the face of a wave of U.S. shale oil output. “The fact Saudi is not going to be the marginal producer means more volatility. And that means bigger moves for traders to take advantage of.” Interestingly, OPEC petrodollars accumulated over the past decade have been invested in “a huge range of global assets, from U.S. Treasuries and high-grade corporate bonds to equities and real estate.” (Financial Times) So, maybe the Saudis don’t care about making money from oil anymore and are content just to put oil shale producers out of business. But that’s not all. Oil producers don’t just produce oil. “Much of their oil proceeds are recycled into foreign assets, to control their currencies and so avoid the destruction of the rest of their industries (a problem known as ‘Dutch disease’).” (Financial Times) And, to make matters worse, “Big bond investors are cutting their exposure to energy companies in the $1.3 trillion U.S. market for junk-rated debt.” This is exerting a downward pressure on gas and oil producers, oil service companies, and equipment providers. “Speculative grade-rated energy debt has recorded a total return of minus 5.27% so far this year, while the broad Bank of America Merrill Lynch U.S. High Yield Index has gained 3.08%.” So portfolio managers are lowering their energy exposure, which accounts for 16% of the junk market. (Financial Times) And a junk bond implosion is usually a signal that a major stock market crash in on the way. Martin Fridson, a Wall Street analyst, stated at a recent investment conference that he sees “‘the next junk-bond implosion’ arriving as early as 2016, and lasting through 2019.” (Daily Wealth) For those of you who want a lot more in-depth information, see Vox.

 

There has only been one other time in history when the price of oil crashed by more than $40 a barrel - and that was during the second half of 2008. At that time the oil price crash preceded the great financial collapse of 2008. Could, will, it happen again? I just wanted to give you a heads-up.

 

Chile:  If you remember, back in 1973 Milton Friedman’s “Chicago Boys” staged a coup d’etat in Chile (with the help of the CIA) and overthrew Salvador Allende in order to institute their great libertarian dream. Henry Kissinger, then Secretary of State and National Security Adviser, said: “I don’t see why we need to stand by and watch a country go communist due to the irresponsibility of its own people. The issues are much too important for the Chilean voters to be left to decide for themselves.” (Democracy Now) General Augusto Pinochet was installed and the economy was “deregulated and privatized.” If you don’t know what I’m talking about, watch the movie “Missing.” (see Wikipedia) They broke down the “state-controlled pension systems, state industries, and state banks (sound familiar, Southern Europe?) and, of course, taxes were reduced. Forthwith, Chile unfettered itself from state control and turned the economy lose into the lair of ‘the freedom of the markets.’” By 1990 Pinochet had stepped down as president, was arrested under an international arrest warrant, and deported from England back to Chile in 2000. When he died in 2006 charges were still pending against him for numerous human rights violations. Oh, and he’d amassed a fortune of at least $28 million. The Friedman/Pinochet legacy was a country in economic chaos. But it’s changing. “The people have decided that the ‘state’ is a beneficial partner for achievement of life’s dreams. The ‘state’ is not the menacing force of evil preached by Margaret Thatcher and Ronald Reagan.” And the rebellion is being driven by the students - because of student debt. (Dissident Voice)

 

Florida:  A panel of the U.S. Court of Appeals for the 11th Circuit struck down a Florida law requiring drug tests for people getting welfare benefits. The court wrote that Florida officials “had failed to show a ‘substantial need’ to test all people who applied for welfare benefits.” (NY Times)

 

Kansas:  U.S. District Judge Daniel Crabtree threw out a suit by creationists that alleged that teaching evolution in schools amounts to an endorsement of atheism as a religion. (Americans United)

 

Ohio:  U.S. Attorney General Eric Holder announced an agreement had been reached with the city of Cleveland after the Department of Justice investigation found that its police department “systematically engages in excessive use of force against civilians.” A court-appointed monitor will oversee implementation of the reforms to which they’ve agreed. (Washington Post) If you want details, here’s the DOJ’s investigative report. It’s painful to read. The investigators found officers firing their guns at people who posed no threat, using lethal force out of proportion to the resistance they met, escalating incidents that might have been easily resolved. And the department never held the officers accountable or even documented most of the incidents.

 

NDAA:  The House of Representatives passed its annual National Defense Authorization Act that included $584.2 billion for the military for the new budget. It passed 300 to 119. The bill “extends training and equipping for moderate Syrian rebels” and includes Obama’s request for $5 billion to fight ISIS and $520 million “for the State Department’s humanitarian and diplomatic efforts.” And there’s $63.7 billion for operations in Afghanistan, Iraq, “and elsewhere.” Of course, once again, it included a ban on transferring detainees from Gitmo to the United States. “Defense spending accounts for just over half of the U.S. government’s budget for so-called discretionary spending.” (AFP)

 

Federal Land:  Rep. Paul Ryan (R, WI) requested the the Congressional Budget Office (CBO) explain its “general approach to estimating the budgetary effects of legislation that would authorize or require the federal government to dispose of land and associated natural resources through sale, exchange, or transfer.” Here’s CBO’s response to that letter. I wonder what he’s up to.

 

Murder by Cops:  The murder of Eric Garner in New York City may be the final straw. In New York City more than 10,000 people protested (CBS News) and that was just the beginning; protests erupted all over the country. In case you’ve been living under a rock, here’s the story in a nutshell. Eric Garner, a Staten Island father of 6, was killed last month by a New York City cop when he was put in a chokehold - a maneuver that has been prohibited by the police department - for, police claim, selling a single cigarette. The Medical Examiner’s Office ruled it was homicide. The grand jury failed to indict the officer who killed him. (MSNBC) There’s no way you can watch the video and not know that something is wrong - with our police departments, with our grand jury system, with our society. (Time)

 

ALEC:  We’ve covered the American Legislative Exchange Council before, but Thom Hartmann’s interview with Jane Carter, Labor Economist with the American Federation of State, County, and Municipal Employees (AFSCME), is just about the best, most concise explanation I’ve ever seen or heard. Watch it at Ring of Fire Radio. This year, ALEC is looking to “shred EPA regulations.” (Al Jazeera)

 

American Dream:  Gregory Clark, a researcher at the University of California-Davis, says that he has “crunched the numbers” and concluded that the American Dream is dead. He found that the American Dream, “where hard work leads to more opportunities, is an illusion in the United States, and that social mobility here is no different than in the rest of the world.” He said: “America has no higher rate of social mobility than medieval England or pre-industrial Sweden. That’s the most difficult part of talking about social mobility, is because it is shattering people’s dreams.” Clark looked at numbers in the U.S. for the past 100 years. (KOVR-TV) In order to understand how things have changed, check out this chart. The data comes from a paper by Roy van der Weide and Branko Milanovic and shows that, from 1960 to 1970, the income of the bottom 10% grew by 3.1% while the income for the top 1% grew only 2.9%. But from 1990 to 2000 the bottom 10% grew only .7% while the top 1% grew by 3.6%. Pretty stunning, huh? (Washington Post)

 

Corporate Bribery:  A study released this week by the Organization for Economic Cooperation and Development (OECD), which consists of 34 of the world’s most economically developed nations, elucidated the bribery of corporations. They found that of 427 bribery offenses spanning 15 years, 57% involved companies’ efforts to obtain public contracts. This occurs mostly in western, “more developed states,” like the United States. “The true social cost of corruption cannot be measured by the amount of bribes paid or even the amount of state property stolen. Rather, it is the loss of output due to the misallocation of resources, distortions of incentives, and other inefficiencies caused by corruption that represent its real cost to society.”

 

Immigration:  President Obama’s executive order modifying immigration rules (TWW, Immigration, 11/22/14) may have hit a glitch. Here’s the skinny. Currently the United States has no budget; we’re operating on a Continuing Resolution (CR), a resolution to continue last year’s funding until a new budget can be passed. The CR expires December 31st and Congressional Republicans had planned to put language in a new bill that would “defund” the immigration agencies, a plan that would scuttle any budget deal and lead to another government shut-down. As you know, all spending bills must begin in the House and House Appropriations Committee Chair Hal Rogers (R, KY) “has argued against such a strategy.” But a memo from the Congressional Research Service to Senator Jeff Sessions (R, AL) said the “lawmakers could halt operations of the U.S. Citizenship and Immigration Services agency by including language explicitly prohibiting the use of funds by a specific agency for a specific purpose.” (Business Insider) Of course, this kind of language could also lead to an impasse and a government shutdown. Not to leave anything to chance, House Republicans have submitted H.R. (House Resolution) 5759, “Preventing Executive Overreach on Immigration.” According to CBO, “The legislation would prohibit the executive branch from exempting or deferring from removal certain categories of aliens considered to be unlawfully present in the United States. It would also prohibit the executive branch from treating those people as if they were lawfully present or had lawful immigration status, or providing those people with the authorization to work legally.” The bill got through the House 219 to 197 on Thursday. But Senate Majority Leader Harry Reid (D, NV) made it known that it wasn’t getting through the Senate. Of course, when the Senate changes control in January it can get through. However, the White House made it known that it would be vetoed. (Guardian)

 

Stolen Data:  What are the notification requirements if your data is stolen? Well, it varies by state. Only Alabama, New Mexico, and South Dakota have no laws regarding notification. “Generally, each state has a list of data it considers personal enough that, if stolen, a consumer must be notified. For example, every form of the law covers financial information, such as credit card number, and any required codes or passwords. Only 4 states - Iowa, Nebraska, North Carolina, and Wisconsin - protect biometric data such as fingerprints and retina images. Wisconsin is the only state to include DNA. California and Florida consider email and password info sensitive enough to trigger notification but not your mother’s maiden name, which is often used as a security question.” Check the map and see where your state stands. (Al Jazeera)

 

TPP:  Obama “signaled” that “he is willing to defy his fellow Democrats and his own liberal base to pursue a partnership with Republicans” to get the Trans-Pacific Partnership. It’s coming and more jobs will be going - as well as much U.S. sovereignty. (Washington Post)

 

TTIP:  The proposed Transatlantic Trade and Investment Partnership (TWW, WikiLeaks and TPP, 11/16/13; TTIP, 11/9/13; Investor-State System, 6/1/13) is giving many Europeans fits. According to one organic farmer in France, “Hormone-boosted beef. Chlorine-washed chicken. Genetically altered vegetables. This is what they want for us. In France, food is about pleasure, about taste. But in the United States, they put anything in their mouths. No, this must be stopped.” (Washington Post)

 

Climate Talks:  The Lima climate talks are still going on. The EU delegation is arguing that “legally binding cuts [to carbon emissions] applying to all countries are necessary and should be adopted by 2015 and entered into force by 2020.” However, the U.S. isn’t going along with it. The U.S. delegation wants a “buffet option” that would “contain some legally binding elements but allow countries to determine the scale and pace of their emissions reductions, even if this calls into question the aim of keeping temperature rises below 2C, the level that countries have agreed to limit warming to.” (Guardian)

 

Tar Sands:  First Nations are making headway in Canada. The Council of Canadians, whose slogan is “Acting for Social Justice,” announced this week that a large protest in British Columbia has temporarily halted a tar sands pipeline that is planned by Texas-based Kinder Morgan to run from Alberta through British Columbia to Pacific Ports.

 

Pensions:  You worked for many years with an agreement that, at retirement, you’d get a pension. A “defined benefit.” Security in old age. A promise - as part of your employment package. Now corporations don’t want to pay it so they’re looking to Congress. And Congress is considering it. Yup. They’re considering passing a law allowing “the benefits of current retirees to be cut as part of an agreement to address the fiscal distress confronting some of the nation’s 1,400 multi-employer pension plans.” (Washington Post)

 

Jobs:  We added 321,000 jobs in November, “keeping the country on track for the strongest annual job growth rate since the late 1990s.” (Washington Post) This isn’t an accident. Private sector job growth has, for the last 30 years, always done better under Democratic administrations. Check out the chart and think about what could have been if Republicans hadn't blocked a really good stimulus package.

 

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