Aftermath News

Bloomberg | Jun 24, 2008

By John Lauerman and Rob Waters

June 24 (Bloomberg) — Preventable diseases commonly seen among impoverished people in Africa, Asia and Latin America are infecting millions of U.S. residents, mostly poor women and children, researchers found.

Chronic infections such as Chagas disease and dengue fever are a major cause of disability, impaired child development, and pregnancy complications in the U.S., said Peter Hotez, author of the study released by the Public Library of Science’s journal Neglected Tropical Diseases.

Parasitic conditions including roundworm and toxoplasmosis, along with tropical bacteria are widespread in many inner cities, the Mississippi Delta, Appalachia, and the Mexican borderlands, the study said. Improved recognition, screening and treatment of the diseases are needed to reduce the impact on patients, who are often poor and less educated, Hotez said.

“If these diseases were hitting wealthy people in the suburbs, we would never tolerate it,” said Hotez, chairman of microbiology at the George Washington University in Washington, yesterday in a telephone interview. “We need to make the names of these diseases household words.”

Even before Hurricane Katrina drove thousands from their homes in Louisiana in 2005, poverty and lack of access to health care contributed to high rates of roundworm and other parasites, the study said. Prolonged flooding has paved the way for increased rates of Chagas, a parasite that can cause lethal heart and intestinal complications, according to the researchers.

Red Cross Recommendation

An American Red Cross researcher called in October for screening of all donated blood for signs of the parasite that causes Chagas disease, which may be found in as many as one in 25,000 blood donors in the U.S., and kills as many as one third of patients. The disease can lurk undetected in infected people for as long as 20 years.

Hotez’s study is a wake-up call to state, local and U.S. health officials that more needs to be done about tropical diseases in the U.S., said Mary Wilson, a Harvard School of Public Health associate professor.

“Most people are completely unaware that many of these diseases still exist in the U.S.,” she said yesterday in a telephone interview. “Even for health professionals who work in major cities, this is below the radar screen.”

Infectious diseases can be difficult to track in poor populations, particularly when immigration is involved, said Elias Bermudez, chief executive officer of Immigrants Without Borders, an advocacy group in Phoenix.

Immigrants

“Communicable diseases are not reported by poor people,” especially undocumented immigrants, he said yesterday in a telephone interview. “With the anti-immigrant atmosphere that exists now in Arizona, people are afraid to go to medical clinics and hospitals, and that compounds the problem.”

Soil-dwelling microscopic worms, such as hookworms, penetrate the skin or gastrointestinal tract and infect billions of people throughout the tropical world, according to the World Health Organization in Geneva. The tiny parasites can cause diarrhea, abdominal pain, weakness, anemia, and may affect mental function and physical growth, the United Nations health branch said on its Web site.

Millions of people in the U.S., most of them in the Mississippi Delta and Appalachia, are likely to be infected with worms, Hotez said. In 2000, researchers estimated that 169,000 homes in Appalachia had no indoor plumbing, and in some of the region’s counties, 25 percent of homes lack complete plumbing, the study said. The report cited another 2000 study showing that about 36 percent of Mississippi Delta blacks then lived below the poverty line.

Study, Drugs Needed

More study is needed of which populations are most vulnerable, how worms are transmitted and how to diagnose them, Hotez said.

“We need to take a better look at which interventions are possible,” he said. “The approach to worms is more systematic in Honduras than it is in the U.S.”

New drugs also are needed to treat dengue fever, a mosquito- borne disease frequently found along the U.S.-Mexico border, he said. Better drugs and diagnostics also are needed for parasitic leishmaniaisis, a skin infection that can affect internal organs, he said.

The U.S. is spending billions to find treatments for anthrax, avian flu, and smallpox, diseases that affect few or no one, Hotez said. More resources should be spent on finding new treatments for tropical diseases that sicken millions annually, he said.

“Here we have real suffering, real diseases among the poorest people living in the U.S.,” he said.

Many tropical diseases could be alleviated just by addressing the poverty of people that suffer from them, said Harvard’s Wilson.

“For a lot of these diseases, basic biomedical research is not going to provide the answers,” she said. “We have to alleviate poverty and social inequities, and provide better education for people living in conditions that contribute to disease.”

Americans flocked to the suburbs after WWII. Soaring energy prices and the sub-prime crisis are driving them back to the cities GETTY IMAGES

Telegraph | Jun 20, 2008

By Tom Leonard in New York

Americans are choosing to abandon the suburban sprawl in favour of a more comfortable, cheaper and greener life in the city centre.

But the so-called “driveable suburb” is becoming increasingly unfeasible as soaring fuel costs make a long commute too expensive for many.

Higher energy prices are also having a disproportionate impact on bigger homes, such as those found in the suburbs, as they inevitably cost much more to heat in winter and cool in America’s often fiercely hot summers.

The sub-prime mortgage crisis has accelerated this flight to the cities – experts have christened it New Urbanism – as property prices have particularly collapsed in more remote areas.

According to a poll for Reuters, about 10 per cent of Americans said they were considering moving closer to work while roughly the same percentage said they were thinking about getting a job closer to home.

John Zogby, a political pollster, said the findings added up to a “broad cultural change” which translated into millions of people considering a major transformation in their lives.

He said: “Low energy costs and the availability of autos helped fuel suburbanisation.”

But as people concluded that high energy prices were here to stay, “this is now one of those big changes in our lives that requires nothing short of dramatic lifestyle changes,” he said.

Even before the latest economic downturn, demand for urban living had been rekindled among two generations – the so-called “baby boomers” in their fifties and “millenials”, the latter born between the late 1970s and mid-1990s.

Both are already drifting away from the suburbs, the baby boomers because they want smaller homes and more accessible amenities, and the millenials to rebel against their cul-de-sac upbringing.

Transportation is now the second biggest household expense in the US after housing. Much of the new demand for city homes is in neighbourhoods close to light railway stations, hastening the move away from a car culture.

Some towns around cities have responded to this exodus by rejecting suburban status and working hard to reinvent their own centres.

Americans are not just reconsidering their living arrangements because of the latest economic downturn.

Nearly 39 per cent of those surveyed in the Reuters/Zogby poll said they were considering changing holiday plans, while 31 per cent plan fewer restaurant visits.

Associated Press |  Jun 6, 2008

By JOSEPH COLEMAN

TOKYO - The world needs to invest $45 trillion in energy in coming decades, build some 1,400 nuclear power plants and vastly expand wind power in order to halve greenhouse gas emissions by 2050, according to an energy study released Friday.

The report by the Paris-based International Energy Agency envisions a “energy revolution” that would greatly reduce the world’s dependence on fossil fuels while maintaining steady economic growth.

“Meeting this target of 50 percent cut in emissions represents a formidable challenge, and we would require immediate policy action and technological transition on an unprecedented scale,” IEA Executive Director Nobuo Tanaka said.

A U.N.-network of scientists concluded last year that emissions have to be cut by at least half by 2050 to avoid an increase in world temperatures of between 3.6 and 4.2 degrees above pre-18th century levels.

Scientists say temperature increases beyond that could trigger devastating effects, such as widespread loss of species, famines and droughts, and swamping of heavily populated coastal areas by rising oceans.

Environment ministers from the Group of Eight industrialized countries and Russia backed the 50 percent target in a meeting in Japan last month and called for it to be officially endorsed at the G-8 summit in July.

The IEA report mapped out two main scenarios: one in which emissions are reduced to 2005 levels by 2050, and a second that would bring them to half of 2005 levels by mid-century.

The scenario for deeper cuts would require massive investment in energy technology development and deployment, a wide-ranging campaign to dramatically increase energy efficiency, and a wholesale shift to renewable sources of energy.

Assuming an average 3.3 percent global economic growth over the 2010-2050 period, governments and the private sector would have to make additional investments of $45 trillion in energy, or 1.1 percent of the world’s gross domestic product, the report said.

That would be an investment more than three times the current size of the entire U.S. economy.

The second scenario also calls for an accelerated ramping up of development of so-called “carbon capture and storage” technology allowing coal-powered power plants to catch emissions and inject them underground.

The study said that an average of 35 coal-powered plants and 20 gas-powered power plants would have to be fitted with carbon capture and storage equipment each year between 2010 and 2050.

In addition, the world would have to construct 32 new nuclear power plants each year, and wind-power turbines would have to be increased by 17,000 units annually. Nations would have to achieve an eight-fold reduction in carbon intensity — the amount of carbon needed to produce a unit of energy — in the transport sector.

Such action would drastically reduce oil demand to 27 percent of 2005 demand. Failure to act would lead to a doubling of energy demand and a 130 percent increase in carbon dioxide emissions by 2050, IEA officials said.

“This development is clearly not sustainable,” said Dolf Gielen, an IEA energy analyst and leader for the project.

Gielen said most of the $45 trillion forecast investment — about $27 trillion — would be borne by developing countries, which will be responsible for two-thirds of greenhouse gas emissions by 2050.

Most of the money would be in the commercialization of energy technologies developed by governments and the private sector.

“If industry is convinced there will be policy for serious, deep CO2 emission cuts, then these investments will be made by the private sector,” Gielen said.

Yahoo News | Jun 2, 2008

By Mark Trumbull

The world economy is cooling this year thanks to a slowdown in the United States, but something new is playing out: This slowdown is serving to amplify a shift in financial power toward Asia and developing nations.

Countries such as China and India are now big enough to help guide the global economy. In the past, a sharp downshift in the US and Europe would decisively slow the rate of global growth.

This time, emerging markets appear poised to grow collectively by 6.7 percent this year, according to recent forecasts by the International Monetary Fund. As a result, the IMF sees world gross domestic product (GDP) growing 3.7 percent, even though the US might experience a recession.

The US economy remains the world’s mightiest. But even for Americans, this new economic order has immediate implications:

•Policymakers at the Federal Reserve must worry about upward price pressures for food and fuel – driven largely by rising demand in developing nations. That problem calls for tighter monetary policy, while the domestic consumer slump calls for the opposite policy.

•Demand for US exports from these new markets is providing a helpful cushion for growth, yet trade tensions could be an issue in the US presidential election.

•Money from emerging markets is playing an increasingly important role in the US financial system.

“We have a new pecking order in the world economy in terms of influence on global growth and economic power,” says Michael Cosgrove, an economist in Dallas. “[Historically] we would see oil prices fall with a slowdown in the US and Europe…. That no longer holds.”

The dynamism of the “BRIC” bloc – Brazil, Russia, India, and China – is not new, but their stunningly rapid rise in this past decade is now being tested in the laboratory of tough times.

For consumers and workers worldwide, what’s playing out is a tug of war between two opposing problems.

First is the weakness in the US and some other advanced nations as a housing slump and related credit squeeze hits households. That’s dragging GDP growth down on all continents.

Second is inflation, a symptom of the strength of emerging nations. Their demand for commodities explains much of the surge in fuel and food prices worldwide. It’s this problem that is, at present, taking center stage as a global worry.

“The good news here is that the standard of living for a lot of people is improving,” says Mr. Cosgrove, publisher of the EconoClast newsletter. But for now, “the bad news is that it pushes up prices.”

What’s changed in the world economy is not just the rate of growth of countries labeled developing or emerging. It’s also the size of their economic output.

“What’s different this time is that the emerging market economies have been growing so rapidly that they’ve emerged,” says Ed Yardeni, an economic forecaster at Yardeni Research in Great Neck, N.Y. “They’ve become very large.”

Now, these nations are accounting for more than half the world’s economic growth in a given year. And, when measured in terms of the domestic purchasing power of their incomes, these countries are also approaching half of global economic output, according to IMF figures.

This makes it a different world from just seven years ago, the last time the US was in a recession. Then, America’s nosedive brought global GDP growth down to 2.2 percent in 2001. Considering the expectation that GDP should keep pace with population growth, that was in effect a worldwide recession.

Oil prices were not a concern then. But growth in developing nations fell sharply to 3.8 percent from 5.9 percent in 2000.

This year, by contrast, the IMF forecasts a recession in the US but growth well above 6 percent in developing countries – down just a percentage point from last year.

Recession or not, how the American economy fares depends partly on trends in emerging markets.

One issue is cash supply. Historically, emerging economies are importers of capital. Now, “sovereign wealth funds,” investment funds controlled by developing nation governments are helping US banks survive mortgage-related losses. More broadly, nearly half of US capital inflows over the past year and a quarter came from China, Brazil, Mexico, and Russia, according to Bank of America.

Emerging economies are also influencing monetary policy. The Federal Reserve has been lowering interest rates to stave off a banking crisis. But rising commodity prices mean the Fed has to be ready to fight inflation with higher interest rates.

Economists at Merrill Lynch predict that the current global economic cycle hinges on when monetary authorities in creditor nations – many in the developing world – clamp down on inflation.

Other economists caution against viewing emerging economies as being in the driver’s seat. “The US is still the biggest by far,” says Jay Bryson of Wachovia Corp in Charlotte, N.C.

He predicts that inflation pressures will abate as the world feels the cooling effect of the slowdown in US and Europe.

Developing nations are also trading more than ever, offsetting the US slowdown. But these trade ties are also controversial, especially with China.

A backlash against trade with developing nations is possible in the aftermath of the US election this fall.

It’s a thorny political question – how to deal with policies that may not help every worker or that help some nations more than others. “Before, say, 1985, the United States got the majority of the gains from trade” with other nations, says Cosgrove. Since then, he reckons, “the US has a smaller share of the gains from trade.”

Trade remains helpful for America and the world, but the danger is that voter psychology is shifting, he says.

Daily Mail | May 27, 2008

By David Derbyshire

Every adult should be forced to use a ‘carbon ration card’ when they pay for petrol, airline tickets or household energy, MPs say.

Anyone who exceeds their entitlement would have to buy top-up credits from individuals who haven’t used up their allowance. The amount paid would be driven by market forces and the deal done through a specialist company.

MPs, led by Tory Tim Yeo, say the scheme could be more effective at cutting greenhouse gas emissions than green taxes.

But critics say the idea is costly, bureaucratic, intrusive and unworkable.

The Government says it supports the scheme in principle, but warns it is ‘ahead of its time’.

The idea of personal carbon trading is increasingly being promoted by environmentalists. In theory it could be used to cover all purchases - from petrol to food.

For the scheme to work, the Government would need to give out 45million carbon cards - each one linked to a personal carbon account. Every year, the account would be credited with a notional amount of CO2 in kilograms.

Every time someone makes a purchase of petrol, energy or airline tickets, they would use up credits. A return flight from London to Rome would, for instance, use up 900kg of CO2 credits, while 10 litres of petrol would use up 23kg.
Enlarge
Mr Yeo, chairman of the committee said personal carbon trading rewarded those with a low carbon footprint with cash.

‘We found that personal carbon trading has real potential to engage the population in the fight against climate change and to achieve significant emissions reductions in a progressive way,’ he said.

‘The idea is a radical one. As such it inevitably faces some significant challenges in its development. It is important to meet these challenges.

‘What we are asking the Government to do is to seize the reins on this, leading the debate and coordinating research.’

The Government is committed to cutting CO2 emissions to 20 per cent below 1990 levels by 2010.

The Climate Change Bill going through Parliament aims to cut emissions by 60 per cent by 2050. The Government has said it backs the idea in principle, but it is currently too expensive and bureaucratic.

Environment Minister Hilary Benn said: ‘It’s got potential but, in essence, it’s ahead of its time. There are a lot of practical problems to overcome.’

A Department for Environment, Food and Rural Affairs report into the scheme found it would cost between £700million and £2billion to set up and up to another £2billion a year to run.

Tory environment spokesman Peter Ainsworth added: ‘Although it does have potential we should proceed with care. We don’t want to alienate people and we want everyone to be on board.’

But critics say the idea is deeply flawed. The scheme would penalise those living in the countryside who were dependent on their cars, as well as the elderly or housebound who need to heat their homes in the day.

Large families would suffer, as would those working at nights when little public transport is available.

It would need to take into account the size of families, and their ages. There is huge potential for fraud.

Matthew Elliott of the Taxpayers’ Alliance said the cards would be hugely unpopular. ‘The Government has shown itself incapable of managing any huge, complex IT system.’ he said.

HOW THE SCHEME WOULD WORK

Every adult in the UK would be given an annual carbon dioxide allowance in kgs and a special carbon card.

The scheme would cover road fuel, flights and energy bills.

Every time someone paid for road fuel, flights or energy, their carbon account would be docked.

A litre of petrol would use up 2.3kg in carbon, while every 1.3 miles of airline flight would use another 1kg.

When paying for petrol, the card would need to swiped at the till. It would be a legal offence to buy petrol without using a card.

When paying online, or by direct debit, the carbon account would be debited directly.

Anyone who doesn’t use up their credits in a year can sell them to someone who wants more credits. Trading would be done through specialist companies.

Gap between rich and poor to worsen

The Guardian | May 23, 2008

by Andrew Clark

Riots, protests and political unrest could multiply in the developing world as soaring inflation widens the gap between the “haves” and the “have nots”, an investment bank predicted yesterday.

Economists at Merrill Lynch view inflation as an “accident waiting to happen”. As prices for food and commodities surge, the bank expects global inflation to rise from 3.5% to 4.9% this year. In emerging markets, the average rate is to be 7.3%.

The cost of food and fuel has already been cited as a factor leading to violence in Haiti, protests by Argentinian farmers and riots in sub-Saharan Africa, including attacks on immigrants in South African townships.

Merrill’s chief international economist, Alex Patelis, said this could be the tip of the iceberg, warning of more trouble “between nations and within nations” as people struggle to pay for everyday goods. “Inflation has distributional effects. If everyone’s income moved by the same rate, you wouldn’t care - but it doesn’t,” said Patelis. “You have pensioners on fixed pensions. Some people produce rice that triples in price, while others consume it.”

A report by Merrill urges governments to crack down on inflation, describing the phenomenon as the primary driver of macroeconomic trends. The problem has emerged from poor food harvests, sluggish supplies of energy and soaring demand in rapidly industrialising countries such as China, where wage inflation has reached 18%.

Unless policymakers take action to dampen prices and wages, Merrill says sudden shortages could become more frequent. The bank cited power cuts in South Africa and a run on rice in Californian supermarkets as recent examples.

“You’re going to see tension between nations and within nations,” said Patelis.

The UN recently set up a taskforce to examine food shortages and price rises. It has expressed alarm that its world food programme is struggling to pay for food for those most at need.

Last month, the World Bank’s president, Robert Zoellick, suggested that 33 countries could erupt in social unrest following a rise of as much as 80% in food prices over three years.

Merrill’s report said the credit crunch has contributed to a global re-balancing, drawing to a close an era in which American consumers have been the primary drivers of the world’s economy.

In a gloomy set of forecasts, Merrill said it believes the US is in a recession - and that American house prices, which are among the root causes of the downturn, could fall by 15% over the next 18 months.

The bank said Britain’s economic outlook is “deteriorating” as consumer confidence weakens. The Office for National Statistics yesterday said that retail sales fell by 0.2% in April compared to March.

Global inflationary pressures have led to higher prices in Britain highlighting the dilemma for the Bank of England’s monetary policy committee, which sets interest rates.

The MPC voted by eight to one to keep rates on hold last month in spite of a rapid slowdown in the British economy. The Bank is concerned about food prices that rose by 6.6% over the past year and soaring fuel costs, feeding higher inflation, which is now at 3%.

Alistair Darling, the chancellor, met representatives of supermarkets and farmers yesterday to discuss the threat to the economy from the rising cost of food.

The US Federal Reserve, which has cut interest rates to 2%, is gloomy in its outlook for the US economy because of the combined challenges of slow growth and soaring commodity prices. The Fed is predicting that unemployment and inflation will be higher than expected.

Oil prices are expected to continue rising rapidly after hitting a third record in a row yesterday, as supply continues to outstrip demand.

Related

Revolution, flashmobs, and brain chips. A grim vision of the future

Business & Media Institute | May 22, 2008

By Jeff Poor

It may be the mother of all doom and gloom gas price predictions: $12 for a gallon of gas is “inevitable.”

Robert Hirsch, Management Information Services Senior Energy Advisor, gave a dire warning about the potential future of gas prices on CNBC’s May 20 “Squawk Box”. He told host Becky Quick there was no single thing that would solve the problem, due to the enormity of the problem.

“[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon,” Hirsch said. “And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it.”

Hirsch told the Business & Media Institute the $12-$15 a gallon wasn’t his prediction, but that he was citing Charles T. Maxwell, described as the “Dean of Oil Analysts” and the senior energy analyst at Weeden & Co. Still, Hirsch admitted the high price was inevitable in his view.

“I don’t attempt to predict oil prices because it’s been impossible in the past,” Hirsch said in an e-mail. “We’re into a new era now, and over the next roughly five years the trend will be up significantly. However, there may be dips and bumps that no one can forecast; I wouldn’t be at all surprised. To me the multi-year upswing is inevitable.”

Maxwell’s original $12-15-a-gallon prediction came in a February 5 interview with Energytechstocks.com, a Web site run by two former Wall Street Journal staffers.

“[Maxwell] expects an oil-induced financial crisis to start somewhere in the 2010 to 2015 timeframe,” Energytechstocks.com reported. “He said that, unlike the recession the U.S. appears to be in today, ‘This will not be six months of hell and then we come out of it.’ Rather, Maxwell expects this financial crisis to last at least 10 or 12 years, as the world goes through a prolonged period of price-induced rationing (eg, oil up to $300 a barrel and U.S. pump prices up to $15 a gallon).”

According to associate of Maxwell at Weeden & Co., Maxwell is out of the country and currently unavailable for comment.
Maxwell’s biography on the Weeden & Co. Web site said he “has been ranked by the U.S. financial institutions as the No. 1 oil analyst for the years 1972, 1974, 1977 and 1981-1986,” according to polls taken by Institutional Investor magazine.

“In addition, for the last 17 years he has been an active member of an Oxford-based organization comprised of OPEC and other industry executives from 30 countries who meet twice a year to discuss trends within the energy industry.”

Although Maxwell’s prediction is for the long-term, not everyone supports high-end predictions, even in the short-term. CNBC contributor and the vice president of risk management for MF Global (NYSE:MF) John Kilduff said on “The Call” May 7that he expected gas prices to drop following the Chinese Olympics, as China’s economic boom slows down.

60% of oil price inflation due to pure speculation

Global Research | May 2, 2008

by F. William Engdahl

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it’s also a key benchmark for US production.

‘The tail that wags the dog’

All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”

With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.
Full Story

US giants Conoco and Exxon have more money these days than they know what to do with, so they’re handing it out to shareholders. What they aren’t doing with it is much that will reduce the oil crunch, says MSN Money columnist Michael Brush.

MSN | May 21, 2008

By Michael Brush

While many Americans struggle to fill their gas tanks, big U.S. oil companies are making so much money that they literally don’t know what to do with it.

Instead of reinvesting more of their newfound wealth to increase supplies or develop emerging technologies that might one day reduce energy costs, they are giving much of the loot to shareholders already enjoying outsized gains.

In a capital-intensive business, giving cash back to shareholders is often the equivalent of throwing in the towel. It’s saying “we can’t do anything with this money to improve our business.”

And it certainly doesn’t address the oil crunch that consumers pay for every day at the pump.

Is that what oil giants pay executives exorbitant salaries to do? Especially in a sector where better long-term vision and reserve development 10 years ago might have helped avoid the current mess?
I don’t think so. But that’s what’s happening.

Big money is worried, too

This isn’t just an issue for disgruntled consumers. Analysts debated the issue with ConocoPhillips (COP, news, msgs) execs on its last conference call.

The company made $11.9 billion in net income last year, and it will do even better this year. It plans to give it all back to shareholders, paying more than $3 billion in dividends and spending $10 billion to buy back shares. (Buybacks reduce the number of shares on the market, usually increasing the share price.)

That’s a lot of cash, enough to take 9 cents off the price of every one of the 141 billion gallons of gasoline consumed in the United States in a year.

Michael LaMotte of JPMorgan Chase (JPM, news, msgs) questioned why ConocoPhillips wasn’t devoting more than $15 billion to its capital budget. After all, ConocoPhillips production volumes declined in the last quarter, even without counting production lost when it got booted out of Venezuela.

Citing the juicy returns that energy companies get from finding and producing oil with crude prices are so high, LaMotte expressed exasperation. “I mean, clearly excess cash goes to buyback, but if I look at returns of a buyback program versus (capital spending), what’s the thought process there?” he asked.

Conoco chief James Mulva, who places a big emphasis on cutting costs as a way to raise his company’s stock, brushed off the protest. “We like the discipline of the share repurchase,” he said. “If we find that we have more cash flow, it’s not really going to be going toward capital spending.”

Exxon’s billions

For example, take a look at ExxonMobil (XOM, news, msgs), the biggest publicly traded U.S. oil company. It generated $40.6 billion in net income last year and $36.6 billion in free cash flow. What did it do with those riches?

It gave $38.4 billion back to shareholders — $7.4 billion in dividend payments and $31 billion through share buybacks.

Let’s put that $38.4 billion in perspective. Assume the average household spent $2,200 on gasoline last year, up 10% from the $2,000 the Bureau of Labor Statistics (BLS) says they spent in 2005, the latest numbers available.

• This means the windfall profits that ExxonMobil gave back to shareholders last year were enough to buy all the households in both California and Pennsylvania gasoline for the entire year.

• It was enough to give everyone a 27 cents-a-gallon discount on gas nationwide for the whole year.

Despite ExxonMobil’s generosity with shareholders, it’s made so much money recently that it still had $31.4 billion in cash, net of debt, at the end of the first quarter of 2008. This year, ExxonMobil plans to give $24 billion back to shareholders in the form of buybacks and more than $8 billion in dividends.

This despite the fact that, as my colleague Jim Jubak reported recently, Exxon’s production is falling.

What about the future?

Certainly, there’s nothing wrong with rewarding shareholders; that’s what capitalism is all about. But we should all get a little uneasy when we consider what big U.S. oil companies are not doing with the current windfall.

They’re not spending proportionately more wealth to develop new reserves. At a time when energy experts say gas prices are soaring in part because of a dearth of development over the past decade, this seems shortsighted and irresponsible. But that’s what’s happening.

Thanks to rising energy prices, ExxonMobil’s free cash flow jumped 135% to $36.6 billion last year, from $15.6 billion in 2003. The company has hiked dividends 8.3% a year, annualized, over the past five years, according to Morningstar. The amount of money spent on share buybacks increased 427% to $31 billion last year, compared to 2003. But capital spending only went up 20% in the same time frame, to $15.4 billion.

Gas prices set global records

Americans aren’t the only ones feeling pain at the pumps. In most countries drivers pay more, but in oil-rich Saudia Arabia a gallon costs 45 cents.

ConocoPhillips’ free cash flow increased 300% to $12.7 billion in 2007, compared to 2003. Over the past five years, it increased dividends by 17.3% a year, annualized. It bought back no stock in 2003 and 2004. But stock buybacks advanced to $7 billion last year and will increase again to $10 billion this year. In contrast, capital spending increased only 90% in the same time frame to $11.8 billion.

While ExxonMobil and ConocoPhillips reinvest just 29% and 48% of their cash from operations into their capital budgets, foreign energy giants with prodigious cash flow like Royal Dutch Shell (RDS.A, news, msgs) and Total (TOT) are doing more to assure sufficient energy supplies down the road. They reinvest 71% and 63% of operating cash flow into capital spending.

They’re not spending substantially more on green, sustainable and renewable energy alternatives. While BP (BP, news, msgs) may overplay its green image, as I wrote recently, at least it is spending a decent amount on alternative energy development. Comparable spending at ExxonMobil and ConocoPhillips remains pathetically low, maintains industry critic Antonia Juhasz, a fellow at Oil Change International and author of “The Tyranny of Oil: The World’s Most Powerful Industry, and What We Must Do to Stop It,” due out in September.

BP spent $688 million, or 4.5% of its capital budget, on renewable energy in 2006 (including a few other activities lumped in to this budget line.) ExxonMobil spent nothing that year, says Juhasz. ConocoPhillips spent only 0.5% of its capital budget, or $80 million, on “emerging businesses,” which includes alternative energy along with many other projects, says Juhasz.

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Big Oil Screws America

USA TODAY | May 19, 2008

By Dennis Cauchon

The federal government’s long-term financial obligations grew by $2.5 trillion last year, a reflection of the mushrooming cost of Medicare and Social Security benefits as more baby boomers reach retirement.

That’s double the red ink of a year earlier.

Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That’s nearly $500,000 per household.

When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.

The $2.5 trillion in federal liabilities dwarfs the $162 billion the government officially announced as last year’s deficit, down from $248 billion a year earlier.

“We’re running deficits in the trillions of dollars, not the hundreds of billions of dollars we’re being told,” says Sheila Weinberg, chief executive of the Institute for Truth in Accounting of Chicago.

The reason for the discrepancy: Accounting standards require corporations and state governments to count new financial obligations, even if the payments will be made later. The federal government doesn’t follow that rule. Instead of counting lifetime benefits for programs such as Social Security, the government counts the cost of benefits for the current year.

The deteriorating condition of these programs doesn’t show up in the government’s bottom line, but the information is released elsewhere — in Medicare’s annual report, for example. Since 2004, USA TODAY has collected the information to provide taxpayers with a financial report similar to what a corporation would give shareholders. Big new liabilities taken on in 2007:

• Medicare: $1.2 trillion.

• Social Security: $900 billion.

• Civil servant retirement: $106 billion.

• Veteran benefits: $34 billion.

The multitrillion-dollar loss is a more meaningful financial number than the official deficit, says Tom Allen, chairman of the Federal Accounting Standards Advisory Board, which helps set federal accounting rules.

Medicare has an unfunded liability of $30.4 trillion.

That means, in addition to paying all future Medicare taxes, the government needs $30.4 trillion set aside in an interest-earning account to pay benefits promised to existing taxpayers and beneficiaries. The amount is sure to rise when the oldest of 79 million baby boomers — 62 this year — reach 65 and become eligible.

Economist Dean Baker says the huge liabilities are potentially misleading because future generations will have greater income. “If we fix health care, then our deficits can be easily dealt with,” he says.

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Entitlement liabilities cost over $500K per household
Uncle Sam wants you … to cough up a half-million dollars to fund current entitlement obligations.