And So the US Economy Picks Up Where It Left Off in the 1970s
Newsweek has a couple of articles on stagflation you might want to read. From the first:
Inflation is generally on the rise throughout the world, and the rate of inflation is higher in many parts of the world than it is in the U.S. But Americans may feel they’re getting hurt more by the current outbreak of inflation than many of our trading partners. Inflation is being driven by rising energy and food prices. Commodities-wheat, gold, oil, you name it-are getting more expensive. Another way of thinking about it, however, is that the dollar is losing ground against wheat, gold, oil, and other commodities. As the U.S. has pursued fiscal and monetary policies that debase the currency, the dollar has weakened significantly against many of the world’s currencies. Consequently, when a commodity that is priced on a global basis in dollars, like oil, goes ballistic, the chumps who have all their assets in dollars will get hurt disproportionately. Americans today pay about $100 for a barrel of oil. But if you’re French, and you’re buying oil with the Euro, which has increased by about 16 percent against the dollar in the past year, the blow has been substantially cushioned. What’s more, many of the countries that have pegged their own currencies to the dollar, including China and the Persian Gulf states, either subsidize gas or use price controls. American consumers and businesses are, in some ways, uniquely exposed to the twin ravages of a weak dollar and expensive oil.
It has been clear that Bush has mismanaged the economy in fairly spectacular fashion. But it’s nice to see the press beginning to bring out the dreaded word "stagflation" so we can brand Bush and his chosen successor with the term.
But I’m more struck by this stat, from WorldChanging:
It finally happened this week. The price of oil passed the all-time inflation-adjusted peak of $103.76 that was set in April 1980—and is now three times what it was just four years ago.
What’s going on? This is a record that virtually none of the world’s oil experts predicted, particularly at a time when the world economy is slumping and the demand for gasoline is now dropping in the United States.
And it’s going to get worse from here.
Some of the blame may go to speculation and the decline of the dollar. But the roots of the problem run deeper.
World crude oil production has actually fallen from 73.8 million barrels per day in 2005 to 73.2 million barrels per day in the first ten months of 2007, according to the U.S. Energy Information Administration. This makes 2005 the peak year for world oil production so far, though it is too early to know if this will turn out to be the all-time high.
In 2007, crude oil production declined in some of the world’s largest oil-producing countries— including Indonesia, Mexico, Norway, Nigeria, the United Kingdom, Saudi Arabia, and Venezuela—due to a combination of geological and political factors.
Whether that means we’re at Peak Oil or not is unclear. But it does mean all the gimmicks the US has used since the 1970s to sustain an unsustainable economic hegemony–making the dollar the reserve currency and neo-colonizing the world through global "free" trade agreements–have done nothing more than get us back to where we were in 1980.
Though, in 1980, we were already recovering from a long, expensive, senseless war. We’re still deeply mired in one now, one that is squandering what little cash we might use to fix the fundamentals of our economy.
Oil, the mortgage crisis, the weak dollar, the national debt, and Iraq. The perfect storm.
not quite, they have the tail wagging the dog here
inflation is being driven by the war, by this president’s unparalleled printing of money, borrowing money and refusing to tax to fund the war
I’ve been wondering when that production of greenbacks would translate into the inflation we saw in the viet nam war, it actually took longer then I expected
the media, yes newsweek, doesn’t want to let on it is the war that drives this inflation
Agree that the war has greatly exacerbated any and all bad economic implications, but to underscore the point, consider this phrase from the Newsweek article:
But if you’re French, and you’re buying oil with the Euro…”
What they don’t explain (and may not be aware of) is that for years the French have priced oil more realistically than the US. IIRC, in 1997, I paid at around (US $7.00/gal) for 4 liters (approx one gal) of gas in France. The French government, not wanting to be in thrall to the Mid-East, had a tax on petrofuels that was based in a pragmatic, realistic view of the actual COST of the fuels. Those costs included national security.
Americans preferred Reagan’s Sweet Lies.
Sustainable economic policies (which would have driven different pricing schemes and stricter regulation) were anathema. Anyone who tried to explain the problems (Al Gore) was demonized.
So here we are.
Clearly, the old mechanisms aren’t working.
Transitional times.
I agree with your entire post but let’s point out, our oil prices are SUPPOSED to be subsidized by our own production
I want ALL american petro sold in AMERICA,not on the friggin open market
‘
opendollarized market’ — how’s that working out in an era of ‘globalization’?Actually, I don’t think the problems would be as bad if they weren’t underlain by resource scarcity. That’s the real term that Dare Not Speak Its Name.
We have known for a long time that we needed to ‘live different’: build cities more sustainably, grow food more sustainably, etc, etc. But we’ve had too few political leaders who believed it — and Gore was our best, brightest hope.
He’s now left politics behind, which suggests this conversation needs to move beyond nation states.
Bush is the last, desperate gasp of a corrupt, Enron-delusional, dying era. At least, I hope he is
Someone should tell conservatives that just because your ideology is dedicated to taking us back to the “good old days,” it doesn’t mean you can control which “good old days” you get.
Exactly the same argument about “going back” with the Global Warming problem.
Back to what? That is an unknown; a crap shoot hope.
It ain’t gonna be fun.
My commuter train system is looking at fare increases this summer. The low end of their estimated increase is 3.5 percent, going up to 7.5 percent. Diesel prices are hitting them hard.
If it goes up a lot, people will start driving or taking the (cheaper, less comfortable, slightly slower) bus.
What was invading Iraq supposed to do for us, George?
Spot on. Saying that high prices cause inflation is like saying that high temperatures cause a fever or that bright light causes sunshine.
The only thing dumber that the press endlessly repeating this error is when policy makers fall for it too and try to fix inflation by controlling prices. There are only two ways to fix inflation 1) take money out of circulation or 2) put more goods on the market.
The only way out of our present mess is to face the fact that we are borrowing bucket loads of money to pay for a war no one really wants.
– MarkusQ
Mozillo, O’Neal, and Prince and their aides are starring before Waxman’s committee, now on CSPAN and at http://oversight.house.gov/story.asp?ID=1762
That’s Angelo Mozillo of Countrywide Financial, Charles Prince formerly of Citigroup, and Stan O’Neal formerly of Merrill Lynch.
One of the ways that we absorb higher crude oil prices is by printing more money. The problem is that this feeds inflation.
The other thing I wanted to mention is a thought experiment I do every so often. It works like this. The base cost of crude oil (production, transportation, reasonable profit, etc.) was in the $40-45/bbl range in early 2007 before the price exploded. Now added to this base price was a chronic instability premium of $10-15/bbl because not coincidentally oil producing areas are highly unstable. This makes for an adjusted price of $50-60/bbl. Next take into consideration that the dollar has lost 39% of its value against the euro since Bush took office and that it was not until 2007 that there was a adjustment in prices reflecting this. So add in a 39% inflation correction factor. This gives a $69.5-83.5/bbl range with $76.5/bbl being the average. The current price for West Texas Intermediate Crude (Cushing Spot) is $105.79. The difference between these two numbers ($29.29 +/- $7) gives you an idea of the pure (mostly hedge fund) speculation that is going on. In other words about 28% of the cost of oil is due to this completely non-productive gaming of the system.
Don’t forget that the Strategic Petroleum Reserve is still being topped up at $100 a barrel – this is a gift to the oil companies as well, contributing to the shortage, increasing the price, and justifying it with National Security concerns.
The price of gasoline in Nashville was around 3.04 per gallon for regular, which has been pretty steady for some time while the futures prices rise. How much of the speculation is gambling between Exxon-Mobile and Hedge Funds?
In my teens, I read this book about the commodities futures market, warning the average guy to stay away. The author, using the pseudonym Adam Smith, wrote about the cocoa market. As I recall it, he said, if Hershey’s doesn’t like the price of cocoa, it pounds the market to get the price it wants.
Later, I did securities regulation, and had a chance to see Roger Stone, Reagan’s appointee for the CFTC in action. It was amazing to watch an agency totally subverted. Stone was once quoted as saying that the commodities markets were the last wild west frontier. Meanwhile, the really good fraud investigators we were working with on a coal futures fraud case, were transferred to some idiot market regulation section, and quit.
For me, this strongly supports Hugh’s argument.
Perhaps shrink wrapping a few tons of hundred dollar bills and distributing them throughout the country (preferably to really corrupt people) is the answer.
Yeah, I think we tried that in Iraq. (See: stacks of $100 bills flown to Iraq, circa 2003.)
Didn’t work out so well.
Oh, goody. All it needs now is Junya making the V-for-victory sign and saying, “I am not a crook.”
ooh, can I start wearing my WIN button again ?
Dang it! I tune out for a few days and miss the Carl Truscott thread.
I ask for your indulgence.
As EW and other commenters point out, Truscott was the head of Bush’s US Secret Service (USSS) Presidential Protective Division (PPD) detail. Truscott started being the head Agent during Bush’s candidacy in 2000 (post RNC convention, when the candidate gets USSS protection. He left around 2003 or 2004.
Being head of PPD is a huge deal. As head, you get virtually unlimited resources and the best of the best people employed by the Secret Service. You have the confidence of the First Family. And more than likely, you become a friend. You also have a seat – front and center – to all of the action. More often than not, the head of PPD is the guy standing directly behind the President – almost always. And the head of PPD occupies the right front seat of the limo.
Carl Truscott was that guy.
Carl Truscott would have seen it all. Carl Truscott would have been in a position to cover it up or deny it. Did Carl Truscott ever get interviewed by Patrick Fitzgerald during the Plame case (like President Clinton’s SAIC Larry Cockell did during Ken Starr’s Monica Lewinsky farce)? Did Carl Truscott help the White House bury and stonewall the USSS Secret Service visitor records for the likes of Abramoff, Gannon and the Energy Task Force? Did Carl Truscott pull strings to diffuse the “Denver Three” and “no free speech at taxpayer events” scandals of 2004/2005?
I bet he did.
But that’s where things come crashing down. Consider what Truscott is getting dinged with. Petty stuff – on Washington standards. Helping a kid with a video? Mistreating co-workers? Running over a budget? Scandalous things, but hardly the thing that takes down a friend of the President.
No, I think Truscott ran afowl of the President. I think he talked to Patrick Fitzgerald. I think he said too much. And I think that was the Bush Administration’s retaliation.
You see, people like Truscott need to leave government service to make money. And the Director-level job at a Federal law enforcement agency is that last jumping off pad. Most former Agents do Corporate or Sports team security. It pays big.
But Truscott can’t do that. The Bushies cut off his future livelihood.
At least this is what I suspect.
You don’t think he’s making a mint at the security company he’s OVP at? (Haven’t checked the federal contracts there–I suppose I should).
And why honor him at the BATF stuff, if they weren’t trying to keep him happy?
Interesting comment–glad to see you corroborate my instinct about his access as USSS.
Oh, and another important point.
Truscott was on the Presidential Protective Detail during Clinton (97-00). He was an ATSAIC or maybe head of a “shift.” I can’t remember which, but it was a leadership position within PPD.
And Mark Sullivan (who you also mention) was also on PPD at that time, and probably also an ATSAIC.
USSS goes to great lengths to protect their own. If there was any covering to be done, I bet Truscott could’ve counted on Sullivan as they cut their teeth together, so to speak.
I don’t recall if Truscott was called to testify during Lewinsky. Many agents on PPD as well as on the Uniformed Division were. But Truscott was a company man.
Now during the Clinton Admin there were the usual Agent-White House (young) Staff(ers) “indiscretions” going on (probably also going on during Bush) – maybe Truscott was taking notes about Clinton and was willing to talk. Nothing like ingratiating yourself to a future protectee by sharing war stories about the guy who was leaving… There was an article in Newsweek or US News in mid-2004 that hit on one of them back when the USSS was getting in trouble for sidelining African-American agents (the two issues were not connected).
[I’m not going to name names because I count some of those among my friends but they’re easy to find].
Is the culture in the USSS one of loyalty towards the office of President, or the man who occupies it? I seem to recall that there were reports of Bush 41’s detail, made up of conservative Republican types, sharing stories early in Clinton’s first term about their contempt for him – was this because they hate DFHs, or because they were tight with Bush 41, or a combination of both?
Good news… McBush, I mean, McCain has great confidence in his ability to understand economic issues and fashion a productive path forward.
The petrodollar was a Texan creation, John B. Connally cooked it up
for Nixon to offset the unfinanced Vietnam War… fitting that it dies
with the Texas Mafia in the drivers seat. Many voices from all points
of the political spectrum say we are in real trouble with this, another
unfinanced war finally killed the goose.
Nice point.
Too bad we don’t have Americquest former CEO/President/owner Ronald Arnall up there. Arnall is a friend of George W. Bush’s. He’s the outgoing US Ambassador to the Netherlands.
Ameriquest made thousands of loans worth billions to subprime borrowers. Arnell made millions of dollars. Ameriquest was a predatory lender.
And now Ameriquest is out of business after paying a fine and not admitting guilt.
And the mortgages they “built” and sold to investors are defaulting. And people are losing their homes.
Another “great job” Bushie profile in courage.
Did you see this?
I strongly recommend the link you’ll find there. I’ve been calling that firm “Sotto Voce Mutual” because I think they have a strategy of flying in the shadow of the much louder and very provocative Mozillo/CFC. But note how this comes out too late to get their people added to the list, no doubt.
McHenry asks each of the executives whether his firm profited from the mortgage crisis. Each one smartly and proudly answers “No, sir.”
Luckily for them I guess, the Congressman’s time ran out just then.
The 1970’s? As I read it, general informed sentiment goes like this:
Optimistic Scenario: it’s 1991 all over again
Baseline Scenario: it’s 1979 all over again
Pessimistic Scenario: it’s 1929 all over again
The most consistently correct semi-mainstream voices over the past two years have been calculatedrisk and Roubini. Roubini is very dour. CR himself comes in somewhere between baseline and optimistic (his commenters, on the other hand, make Roubini look like Pollyanna).
I think it’s going to be hard to say where we end up, until we see the fallout from C going under.
Well, first we return to Nixon, then to Hoover.
Hey! No worries folks! Boosh was just on my TeeVee and told me that he foresaw the “slight economic slowing” and took steps ahead of time, i.e. the economic “booster shot” he signed into law 3 weeks ago, and that is going to fix everything and make America better than evah!
I thought that this guy, and the ‘pay consultants’, should have been grilled a bit harder:
(from CNN.com)
Absolutely. Rep. Norton did get Richard Parsons a little uncomfortable with his empty formulation of the bonus being part of the compensation, as if it therefore could not be affected by the actual results of the firm in that year, but that was the only thing that landed on them. Then the session was over.
I was sorry no one picked up on the ceos’ mass gaffe earlier, when they were so eager to claim that their firms got no profit from their subprime mortgage operations that they apparently forgot the actual subject of this hearing, which was the justification for their compensation, given the lousy results that ever other stakeholder in sight has experienced from those operations and given that the continued existence of all three firms is more doubtful than anyone would have dreamed possible a few years ago.
did I just hear the word STAGFLATION ???
we’re talking Jimmy Carter territory here folks
does the word KARMA sound appropriate ???
it goes around
it comes around
landed ALL OVER the repuglitards
didn’t it ???
JelloJay…does his surname now ring bells? If any doubt or confusion, read the History Of The Standard Oil Co publ way back ca. 1899 by Ida Tarbell. It is a true whodunit. Not perfect and error free, but on the mark as source for answers. Also the work of L.Fletcher Prouty, The Secret Team [ca.1975] will not disappoint.