Major Monetary Oil Shock Predicted for late 2011

 

Global systemic crisis / World geopolitical breakup – End of 2011: Fall of the “Petro-dollar wall” and a major monetary-oil shock for the United States

With this issue our team is celebrating two important anniversaries in anticipation terms. Exactly five years ago, in February 2006, the GEAB N°2 suddenly encountered worldwide success by announcing the next “Triggering of a major global crisis” characterized especially by “The end of the West as we have known it since 1945”. And exactly two years ago, in February 2009, in the GEAB N°32, LEAP/E2020 anticipated the start of global geopolitical dislocation phase by the end of that same year. In both cases, it is important to note that the undeniable interest aroused by these anticipations at international level, measurable particularly by millions of people reading the related public announcements, has been matched only by mainstream media silence over these same analyses and the fierce opposition (on the internet) of the vast majority of economic, financial or geopolitical experts and specialists.

 

Official unemployment rates (12/2010) – Source: BMGBullion, 01/2011

However, in early 2011, most of the world has no doubt that we are engaged in a process of historic proportions which is seeing the world after 1945 collapse before our eyes, the US in the lead, while the international community breaks down a little more each day, like the social and economic fabric of most countries in the world (1). But the current evidence didn’t, of course, prevent “decision-makers and experts” (2) to be sure in 2006 that there was no risk of a serious crisis on the horizon and, in 2009, that it was absurd to imagine the slightest risk of breakdown in the existing world order, let alone the social order. Alas, today, the elite’s intellectual capacity to cope with the changes currently taking place doesn’t seem to have improved since the same “decision-makers and experts” never imagined it possible just two months ago that Tunisia and then Egypt would shortly see their regimes overthrown. Blind governments and international institutions (3), outdated experts and media (4) … the Western elite and their clones in different regions of the world continue to sink in the “holzweg” of history, those forest trails that lead nowhere, or more precisely as Heidegger pointed out, that lead somewhere only if you have the humility to be constantly listening to the forest and its signals (5).

However, whilst the signals become real warning sirens, our elite seem to have decided to do anything and everything to ignore them. Take a very recent example: the comparison of events affecting the Arab world with the fall of the Berlin Wall. Our team has been very interested to note that this image which we have used since 2006 to help understand the ongoing process of the disintegration of US power, has now blithely been taken up by the political leaders (led by Angela Merkel (6)) and experts of all kinds. Yet today, even those who make this comparison abstain from continuing their intellectual journey to the end, until it leads to an understanding of the dynamics of events. They settle for describing, without analyzing.

Yet this “wall” which is collapsing has been built by someone, or something, and for a specific purpose. The “Berlin Wall” was built by the East German government in the broader context of the “Iron Curtain”, which the USSR wanted in order to separate the Communist bloc from the West as tightly as possible. And it was mainly to avoid any questioning of the power held by the single party in each communist country to perpetuate Moscow’s control of the East European countries; in return, Moscow guaranteed full support and stipends of all kinds to the leaders of Eastern European countries. The fall of the “Berlin Wall”, challenging these monopolies of power and therefore the purposes that they served, thus caused, in a few short months, the successive fall of all the Eastern European communist regimes, ending two years later with the dissolution of the USSR and the end of seventy years absolute power of the Russian Communist Party. 
 

Unemployment rate in the Arab world and Iran – Source: Le Temps, 02/11/2011

So if it’s also a “wall” that’s falling before our eyes in the Arab world, in order to hope to anticipate the subsequent events it is essential to be able to answer these questions: who built it? for what purpose? And the answers are not that difficult to find for those who don’t watch the news with ideological blinkers:

. this “wall” was built by each Arab dictator (or regime) of the region to ensure their continued monopoly on the power and wealth of the country, avoiding any calling into question of their single party or dynastic legitimacy (for the kingdoms). In this sense, there is very little difference between the cliques in power in the Arab countries and those which led the communist countries.

. this “wall” was part of the broader system set up by Washington to preserve their preferential access (in US Dollars) to the region’s oil resources and protect Israel’s interests. The forced integration of the military and security apparatus of these countries (except Syria and Libya) with the US defence system ensures (ensured) unwavering US support and allows (allowed) the Arab leaders involved to receive all kinds of stipends without being called into question by internal or external forces.

So, in thinking a little more about her comparison with the fall of the Berlin Wall during the Munich Security Conference, the German Chancellor could have turned to her neighbour in the discussion, the US Secretary of State Hillary Clinton, and asked her: “Don’t you think that current events in Tunisia and Egypt are the early signs of the fall of all the regimes that depend on Washington for their survival? And that, in particular, they can lead to a rapid collapse of the system supplying oil to the United States set up decades ago? And thus the global system for oil billing and the central role of the Dollar here (7) ? Whilst the Munich Security Conference audience would have suddenly realized that they were finally discussing something serious (8), Angela Merkel could have added: “What about Israel? Don’t you think that this fall of the “wall” will involve the need to reconsider the entire US-Israeli policy in the region very quickly (9) ? And then miraculously, the Munich Security Conference would have regained a foothold in the XXIst century and the Euro-American debate could recharge its batteries in the real world instead of rambling in the transatlantic virtual world and the fight against terrorism.

Sadly, as we all know, this exchange didn’t take place. And the ramblings of our leaders are, therefore, likely to continue with the effect of accentuating the shocks of 2011 and its ruthlessness as GEAB No. 51 anticipated.  

 

Annual relative performance of 40 asset classes (in %, expressed in USD) (in green: profit / in red: loss) – Source: Chris Martenson, 02/04/2011

Yet LEAP/E2020 is convinced that the current events in the Arab world, of which we had correctly anticipated the mechanics, are above all the regional translation of fundamental trends of the global systemic crisis, and in particular global geopolitical dislocation (10). As such, they are evidence of major shocks in the coming quarters. We consider, in particular, that the end of 2011 will be marked by what our team calls the “Fall of the petro-dollar Wall” (11) that will immediately generate a major monetary-oil shock for the United States. It is also one of the main topics of this issue with the broader anticipation of more developments in the Arab world (including an accurate country risk indicator for the region). Also, our team analyzes the current acceleration of the Eurozone emergence process and its implications for the Euro and the situation in Europe. Finally, we give our recommendations regarding all these events.

 

 Notes:

(1) Even the IMF, with the little imagination it possesses is now evoking the specter of civil wars throughout the world as the Telegraph reported on 02/01/2011, whilst The Onion of 01/24/2011 successfully uses black humour in a surprising article, yet indicative of the current atmosphere, that calls the designation by the World Heritage Foundation, sponsored by Goldman Sachs, of the “Gap between the world’s rich and poor” as the 8th Wonder of the World because of its now unparalleled size.

(2) In quotes because we believe a decision maker who does nothing and an expert who knows nothing are, in fact, impostors.

(3) The CIA and the French government provide two outstanding examples of this trend: they didn’t see it coming in Tunisia and Egypt, even though one spends tens of billions of dollars a year spying on the Arab world and the other walked (the Prime Minister and Minister of Foreign Affairs) in the highest corridors of power of the countries concerned. The simple reading of our expectations for 2008 (GEAB N°26 on the subject would, however, have put them on the track since it is exactly the trends then described that have led to the events in Tunisia and Egypt of these last few weeks. Summarized sharply in the Spiegel of 03/02/2011, “Revolution isn’t good for business” … especially when one didn’t see anything coming, one could add.

(4) Here, investors and market players who were satisfied with these analyses now find themselves in serious difficulties since the “El Dorados” smoothly promoted by news reports and “well-informed” glossy articles have been suddenly turned into capital traps in volatile areas whose future cannot be forecast with any certainty. The “tremendous competitive advantages” have for them, almost overnight, become “countries with unmanageable risk”. Outsourcing, sub-contracting, tourism, infrastructure construction, … for all these activities, the whole social, legal, economic, monetary and financial context of the countries involved is pitched into the unknown.

(5) A brief philosophical and methodological comment: without premeditation, our team once again subscribes to a particularly Franco-German approach as our anticipation work not only draws on the concept of “listening” and the unveiling of reality so dear to Heidegger, but also the approach advocated by Descartes, namely the definition of a rational method. Here, moreover, is a synthesis that should inspire those who are currently working to define the future characteristics of Euroland governance. To learn more about this issue of Heidegger and Descartes’ “way”, it is worthwhile reading this page on the Digressions website. And to better understand the method used by LEAP/E2020 and to try to apply oneself at first hand, we recommend the Handbook of Political Anticipation published by Anticipolis.

(6) Source: Bundeskanzlerin, 10/02/2011

(7) We have already witnessed some sizeable changes over oil since the US is about to abandon its own WTI oil index to go by the European Brent index to which Saudi Arabia already converted in 2009 in abandoning the WTI. The price divergence between the two indices culminated with the Egyptian crisis. We will return to the oil issue in another chapter of this issue. Source: Bloomberg, 02/10/2011

(8) This conference, like the Davos Forum, has a delightfully retro air about it. Organizers and participants do not seem to have realized that the world to which they belong has disappeared, that their discussions don’t actually interest anyone in the “real” world and that the many hours of programming devoted to them by international television are the inverse measure of the very small number of spectators who watch them. With more than 1,500 US and UK participants versus 58 Latin American and less than 500 Asian ones, Davos undeniably embodies the typical forum of the “world before the crisis”, confirmed by its linguistic signature, just English (even on its website). Indeed, monolingualism or multilingualism is, according to LEAP/E2020, a first sign, very simple to assess, of whether a project or an organization with international ambitions belongs rather to the world before the crisis or, on the contrary, is already partially adapted to the world after.

(9) On this subject, one should read Larry Derfner’s outstanding editorial in the Jerusalem Post of 02/09/2011.

(10) Washington has thus demonstrated a complete lack of preparation, then obvious indecision, confirming not only the end of all US leadership internationally, but the acceleration of a process of paralysis at the heart of US government. To understand the importance of the event, remember that Egypt is one of the countries in the world that has been the most directly funded and supervised by the United States since the late 1970s. Moreover, the New York Times of 02/12/2011 summarizes the situation very well, whilst trying to present it as a strategy whereas it’s only a lack of strategy, describing the management of the crisis by Barack Obama as the “straddle;, a market technique of trying to cover both sides when one feels that something important will happen but with no idea of what direction it will take. Incidentally, the article illustrates the divide between “ancient” and “modern” that this crisis has brought to the surface at the heart of US power. But we return in more detail to all these aspects and their consequences in another part of this issue.

(11) Which is a strategically essential block of the « Dollar Wall », like the « Berlin Wall » was for the whole of the “Iron Curtain”  

Public debt is simply unpayayable

Public debt has become a problem worldwide. What is becoming more and more evident is that it is unsustainable and simply unpayable. It could be compared to a giant Ponzi scheme. We see no meaningful debt reductions thus, government will have to raise taxes, which will further suppress the economy, or people and companies will be forced to buy such bonds, or perhaps pension and retirement funds will be seized to continue the game for a while longer.

The whole concept of government debt in the US, whether it’s federal, state, municipal, corporate or personal stands on very shaky ground. Debt is serviced with revenues and income and when both are falling it is difficult to service. We have begun to enter a period of slowly rising interest rates. In the US the Fed has managed interest rates to be as low as possible to both aid in a recovery and to keep the financial edifice from collapsing. Over the past six months the bench mark 10-year Treasury note yield has risen from a yield of 2.20% to 2.74% and presently stands at about 3.60%. That 1.4% rise in rates has been offset by GDP growth of 3%. The problem is that such GDP growth has been maintained by growth in debt. The two sources of debt are the Fed and government. The Fed has been buying the government debt by creating money out of thin air. That is called monetization and it causes inflation. The government demand comes from revenues that have fallen and continue to fall, and as a result government issues more debt. The lenders, the bond buyers, sell dilution in the value of debt and in the dollar and as a result demand a higher yield. At this stage you can see how important QE1 and 2 and fiscal stimulus have been over the past 2-1/2 years. Had they not been implemented the economic and financial system would have collapsed. The next question to be asked is will we have to have quantitative easing and stimulus indefinitely? The answer is yes, but unfortunately if that path is followed lenders will demand ever-higher interest rates and the dollar will continue to fall in value versus gold and silver and other currencies. We estimate GDP growth to be 2% to 2-1/4% in 2010, down from 3%, all of which were aided by quantitative easing, the creation of money and credit and fiscal stimulus the result of debt. Without these props there would have been little or no growth, and fairly quickly the economy would have faltered. That would have brought about a classical purge accompanied by a deflationary depression. There will soon come a time the creation of money and credit and fiscal stimulus will no longer work and the system will finally fail. That is inevitable. That will begin to happen when interest rates are rising faster than growth rates. Once that condition exists there is no further hope of servicing debt or creating more debt, because there will be no natural buyers and inflation will be raging if not hyperinflation. The US is not the only country staring into this abyss; most countries around the world have the same problem.

As you probably have already figured out such fiscal and monetary policies of many countries cannot continue. The issuance of new debt has to be curtailed, as well as the growth of future liabilities. On its present course the US is headed toward a deficit in excess of 100% of GDP in just 1-1/2 years.

These countries have experienced and most still do, profligate government spending, little fiscal restraint and outright criminal behavior. Such action in time cause markets to put pressure on governments to mend their ways. That is where the higher yields come into play and as we pointed out we are already witnessing that. In 1 to 1-1/2 years the cost of carrying debt will begin to reduce GDP, because government debt demands will crowd out private investment. Except for AAA corporations we have already seen that over the past two years, as lenders retain cash and generally refuse to lend to medium and small companies and individuals as well.

A product of these conditions is a perpetuation of unemployment, which we believe is 22.6% presently, for years into the future. In addition, we have had 20 years of free trade, globalization, offshoring and outsourcing that has lost America 8.5 million good paying jobs and the loss of 42,400 businesses. We have extended unemployment, but every month millions fall off leaving them on their own and food stamps. These transfer payments make up 20% of household income, which is also unsustainable. Our guess is that the current extended benefits will be extended further in spite of a projected $1.6 trillion deficit. Political types prefer an extension to revolution, but the cost is more debt, a falling dollar and rising gold and silver prices. In addition, an end to extended benefits will sap consumption that must be maintained at 70% of GDP in order to keep the economy from failure. Do not forget the US is not the only country with debt problems. In the same league are Greece, Ireland, Portugal, Belgium, Spain, Italy, England and above all Japan, which is more than 200% and growing exponentially. None of these countries are capable of growing out of their debt problems and thus, eventually we see a multilateral default of debt, which will probably entail a 2/3’s write off of debt. A jubilee of sorts.

If stabilization and growth have to be based on continued creation of money and credit and monetization then the system has to eventually collapse. It is no more a solution than extended unemployment benefits, federal government spending and hiring and food stamps. It throws the problems into the future at a terrible cost. In spite of this largess unemployment won’t improve and the monetary and fiscal effect on the economy will lesson. We call it the law of diminishing returns. Last year we saw 3% growth, or so we are officially told, and this year we believe it will be about 1% less at 2% to 2-1/4%. The effectiveness of the policy is losing momentum and strength. The next question is will a $1.7 trillion QE3 with $850 billion in additional fiscal spending be able to maintain 1% growth. Our answer is we do not think so. This fading monetary and fiscal policy will be accompanied by ever falling government revenues, unless ever more debt is created. Are you getting the feeling that governments are running around in circles with no solution in sight? If you are you are correct. The only answer is to purge the system and the sooner the better. The longer the problems are extended and individuals will be faced with unemployment and under employment and that means borrowing and the use of credit cannot be extended and that means the economy cannot grow. Even if spending cuts and higher taxes were implemented the economic and financial affects would not be felt for 6 months to a year. Government has waited too long.

Projections for the future are very difficult if for no other reason than we do not know where interest rates will be. We assume they will be higher, but how much higher? We just do not know. We can tell you that in 1980 official inflation was 14-3/8% and the long bond yield was over 20%. Will that be repeated, we do not know, but we can say we could see something close to that. If we have hyperinflation we could see 30% inflation. Who knows – we won’t know until we approach getting there. Are we going to look like the German Weimar Republic of the early 1920s or today’s Zimbabwe? We don’t know but it is certainly possible and near the edge of probability.

What really gets our attention is that elitists that control all this really believe they can retain control. If they cannot they figure they will just have another major war, like they always have had. They know what we now. They know deficits are going to further rise precipitously, unless there are major policy changes, spending cuts and higher taxes. Even if the proper steps were taken we are probably looking at 30 or more years of depression. Debt cannot be kept within bounds, just look at what is going on today. The elitists have no intention of radically changing their ways. There will be more of the same until the system ceases to function.

We have written about rising interest rates in the whole spectrum of government and corporate bonds. The average has been 100% to 150%. Official rates have been raised in Brazil, India and China. In the US, bond buyers have already been pricing in yield increases, which they feel are necessary to offset inflation losses. Unfortunately for buyers they have not gotten nearly enough yield to compensate and are losing money on return and currency depreciation versus other currencies, but particularly versus gold and silver. In order to offset real losses, real yields will have to rise and they will. The first stop for the US 10-year note should be a move upward from 3.60% to 4% to 4.25%. That should happen this year. The next move in 2012 should be to 5% to 5.60% and the second move from 5.60% to about 7%. Mind you these are very conservative estimates. Any recovery in housing will be impossible with prices falling another 15% to 20%. Anyone with an ARM will be a dead duck. That means about a 60% plus failure rate. Bumping along the bottom could take 8 to 30 years and as we mentioned before government could end up with most of the housing eventually causing a process of nationalization.

These higher rates, which are inevitable, will raise havoc on the Federal budget and its debt service. Average maturities are 4.5 years – a very foolish move that began some 15 years ago. This means even if taxes are raised and the budget deficit cut, they will only serve as a damper on costs, which would lead to dollar depreciation and default. Worse yet, who will want to buy bonds and in particular US dollar denominated bonds as gold and silver are soaring and profits are falling along with the stock market? The Fed is buying and monetizing at least 80% of treasuries now. That means they will have to buy them all, including some from nations such as China, Japan and Middle Eastern owners. Long-term bond holders will be looking at 30% losses and the stock market 50% plus losses. The monetization process at this point will produce inflation from 14% to 40%, which could well be accompanied by hyperinflation. That hyperinflation could come quickly once inflation passes 14-3/8%, which it officially hit in 1980. At that time 30-year T-bond rates were more than 20%. We do not know exactly what the numbers will be, but we do know they will be terrible. Some time along the way the US will be forced to default and then China will own a goodly part of the US. We also believe that a major world war will be in progress. Again as a diversion from the massive economic and financial problems plus revolutions worldwide, which could short circuit having another world war. We do not know how these events will roll out, but we do know they are probable.

Higher interest rates will cause major problems for banks, private equity funds and hedge funds. The cost of borrowing and using leverage will be prohibitive. Many banks and funds will go under. Defaults will abound and cash flow to bond holders will diminish making outflows greater than inflows. This process of losses will in part mirror what we saw in the early 1930s, not only in reduced value but also in the doubling of gold prices and the increase in gold and silver shares of more than 500%. This also will be accompanied by a complete collapse in living standards.

The Pentagon Needs Some More Wars

The United States government cannot get enough of war. With Libyan dictator Moammar Gadhafi’s regime falling to a rebelling population, CNN reports that a Pentagon spokesman said that the U.S. is looking at all options from the military side.

Allegedly, the Pentagon, which is responsible for one million dead Iraqis and an unknown number of dead Afghans and Pakistanis, is concerned about the deaths of 1,000 Libyan protesters.

While the Pentagon tries to figure out how to get involved in the Libyan revolt, the commander of U.S. forces in the Pacific is developing new battle plans to take on China in her home territory. Four-star Admiral Robert Willard thinks the U.S. should be able to whip China in its own coastal waters.

The admiral thinks one way to do this is to add U.S. Marines to his force structure so that the U.S. can eject Chinese forces from disputed islands in the East and South China seas.

It is not the U.S. who is disputing the islands, but if there is a chance for war anywhere, the admiral wants to make sure we are not left out.

The admiral also hopes to develop military ties with India and add that country to his clout. India, the admiral says, “is a natural partner of the United States” and “is crucial to America’s 21st-century strategy of balancing China.” The U.S. is going to seduce the Indians by selling them advanced aircraft.

If the plan works out, we will have India in NATO helping us to occupy Pakistan and presenting China with the possibility of a two-front war.

The Pentagon needs some more wars so there can be some more “reconstruction.”

Reconstruction is very lucrative, especially as Washington has privatized so many of the projects, thus turning over to well-placed friends many opportunities to loot. Considering all the money that has been spent, one searches hard to find completed projects. The just released report from the Commission on Wartime Contracting can’t say exactly how much of the $200,000 million in Afghan “reconstruction” disappeared in criminal behavior and blatant corruption, but $12,000 million alone was lost to “overt fraud.”

War makes money for the politically connected. While the flag-waving population remains proud of the service of their sons, brothers, husbands, fathers, cousins, wives, mothers and daughters, the smart boys who got the fireworks started are rolling in the mega-millions.

As General Smedley Butler told the jingoistic American population, to no avail, “war is a racket.” As long as the American population remains proud that their relatives serve as cannon fodder for the military/security complex, war will remain a racket.

What is going on in Libya?

Of all the struggles going on in North Africa and the Middle East right now, the most difficult to unravel is the one in Libya.

What is the character of the opposition to the Gadhafi regime, which reportedly now controls the eastern city of Benghazi?

Is it just coincidence that the rebellion started in Benghazi, which is north of Libya’s richest oil fields as well as close to most of its oil and gas pipelines, refineries and its LNG port? Is there a plan to partition the country?

What is the risk of imperialist military intervention, which poses the gravest danger for the people of the entire region?

Libya is not like Egypt. Its leader, Moammar al-Gadhafi, has not been an imperialist puppet like Hosni Mubarak. For many years, Gadhafi was allied to countries and movements fighting imperialism. On taking power in 1969 through a military coup, he nationalized Libya’s oil and used much of that money to develop the Libyan economy. Conditions of life improved dramatically for the people.

For that, the imperialists were determined to grind Libya down. The U.S. actually launched air strikes on Tripoli and Benghazi in 1986 that killed 60 people, including Gadhafi’s infant daughter – which is rarely mentioned by the corporate media. Devastating sanctions were imposed by both the U.S. and the U.N. to wreck the Libyan economy.

After the U.S. invaded Iraq in 2003 and leveled much of Baghdad with a bombing campaign that the Pentagon exultantly called “shock and awe,” Gadhafi tried to ward off further threatened aggression on Libya by making big political and economic concessions to the imperialists. He opened the economy to foreign banks and corporations; he agreed to IMF demands for “structural adjustment,” privatizing many state-owned enterprises and cutting state subsidies on necessities like food and fuel.

The Libyan people are suffering from the same high prices and unemployment that underlie the rebellions elsewhere and that flow from the worldwide capitalist economic crisis.

There can be no doubt that the struggle sweeping the Arab world for political freedom and economic justice has also struck a chord in Libya. There can be no doubt that discontent with the Gadhafi regime is motivating a significant section of the population.

However, it is important for progressives to know that many of the people being promoted in the West as leaders of the opposition are long-time agents of imperialism. The BBC on Feb. 22 showed footage of crowds in Benghazi pulling down the green flag of the republic and replacing it with the flag of the overthrown monarch King Idris – who had been a puppet of U.S. and British imperialism.

The Western media are basing a great deal of their reporting on supposed facts provided by the exile group National Front for the Salvation of Libya, which was trained and financed by the U.S. CIA. Google the front’s name plus CIA and you will find hundreds of references.

The Wall Street Journal in a Feb. 23 editorial wrote that “The U.S. and Europe should help Libyans overthrow the Gadhafi regime.” There is no talk in the board rooms or the corridors of Washington about intervening to help the people of Kuwait or Saudi Arabia or Bahrain overthrow their dictatorial rulers. Even with all the lip service being paid to the mass struggles rocking the region right now, that would be unthinkable. As for Egypt and Tunisia, the imperialists are pulling every string they can to get the masses off the streets.

There was no talk of U.S. intervention to help the Palestinian people of Gaza when thousands died from being blockaded, bombed and invaded by Israel. Just the opposite. The U.S. intervened to prevent condemnation of the Zionist settler state.

Imperialism’s interest in Libya is not hard to find. Bloomberg.com wrote on Feb. 22 that while Libya is Africa’s third-largest producer of oil, it has the continent’s largest proven reserves – 44.3 billion barrels. It is a country with a relatively small population but the potential to produce huge profits for the giant oil companies. That’s how the super-rich look at it, and that’s what underlies their professed concern for the people’s democratic rights in Libya.

Getting concessions out of Gadhafi is not enough for the imperialist oil barons. They want a government that they can own outright, lock, stock and barrel. They have never forgiven Gadhafi for overthrowing the monarchy and nationalizing the oil. Fidel Castro of Cuba in his column “Reflections” takes note of imperialism’s hunger for oil and warns that the U.S. is laying the basis for military intervention in Libya.

In the U.S., some forces are trying to mobilize a street-level campaign promoting such U.S. intervention. We should oppose this outright and remind any well-intentioned people of the millions killed and displaced by U.S. intervention in Iraq and Afghanistan.

Progressive people are in sympathy with what they see as a popular movement in Libya. We can help such a movement most by supporting its just demands while rejecting imperialist intervention, in whatever form it may take. It is the people of Libya who must decide their future.

Libya: Washington Pushing for Civil War to Justify a US-NATO Intervention

by Mahdi Darius Nazemroaya

Is Tripoli being set up for a civil war to justify U.S. and NATO military intervention in oil-rich Libya?

Are the talks about sanctions a prelude to an Iraq-like intervention?

Something is Rotten in the so-called “Jamahiriya” of Libya

There is no question that Colonel Muammar Al-Gaddafi (Al-Qaddafi) is a dictator. He has been the dictator and so-called “qaid” of Libya for about 42 years. Yet, it appears that tensions are being ratcheted up and the flames of revolt are being fanned inside Libya. This includes earlier statements by the British Foreign Secretary William Hague that Colonel Qaddafi had fled Libya to Venezuela. [1] This statement served to electrify the revolt against Qaddafi and his regime in Libya.

Although all three have dictatorship in common, Qaddafi’s Libya is quite different from Ben Ali’s Tunisia or Mubarak’s Egypt. The Libyan leadership is not outright subservient to the United States and the European Union. Unlike the cases of Tunisia and Egypt, the relationship that exists between Qaddafi and both the U.S. and E.U. is a modus vivendi. Simply put, Qaddafi is an independent Arab dictator and not a “managed dictator” like Ben Ali and Mubarak.

In Tunisia and Egypt the status quo prevails, the military machine and neo-liberalism remain intact; this works for the interests of the United States and the European Union. In Libya, however, upsetting the established order is a U.S. and E.U. objective.

The U.S. and the E.U. now seek to capitalize on the revolt against Qaddafi and his dictatorship with the hopes of building a far stronger position in Libya than ever before. Weapons are also being brought into Libya from its southern borders to promote revolt. The destabilization of Libya would also have significant implications for North Africa, West Africa, and global energy reserves.

Colonel Qaddafi in Brief Summary

Qaddafi’s rise to power started as a Libyan captain amongst a group of military officers who carried out a coup d’état. The 1969 coup was against the young Libyan monarchy of King Idris Al-Sanusi. Under the monarchy Libya was widely seen as being acquiescent to U.S. and Western European interests.

Although he has no official state or government position, Qaddafi has nurtured and deeply rooted a political culture of cronyism, corruption, and privilege in Libya since the 1969 coup. Added to this is the backdrop of the “cult of personality” that he has also enforced in Libya.

Qaddafi has done everything to portray himself as a hero to the masses, specifically the Arabs and Africans. His military adventures in Chad were also tied to leaving his mark in history and creating a client state by carving up Chad. Qaddafi’s so-called “Green Book” has been forcefully portrayed and venerated as being a great feat in political thought and philosophy. Numerous intellectuals have been forced or bribed to praise it.

Over the years, Colonel Qaddafi has tried to cultivate a romantic figure of himself as a simple man of the people. This includes pretending to live in a tent. He has done everything to make himself stand out. His reprimanding of other Arab dictators, such as King Abdullah of Saudi Arabia, at Arab League meetings have made headlines and have been welcomed by many Arabs. While on state visits he has deliberately surrounded himself with an entourage of female body guards with the intent of getting heads to turn. Moreover, he has also presented himself as a so-called imam or leader of the Muslims and a man of God, lecturing about Islam in and outside of Libya.

Libya is run by a government under Qaddafi’s edicts. Fear and cronyism have been the keys to keeping so-called “order” in Libya amongst officials and citizens alike. Libyans and foreigners alike have been killed and have gone missing for over four decades. The case of Lebanon’s Musa Al-Sadr, the founder of the Amal Movement, is one of the most famous of these cases and has always been a hindrance to Lebanese-Libyan relations. Qaddafi has had a very negative effect in creating and conditioning an entire hierarchy of corrupt officials in Tripoli. Each one looks out for their own interests at the expense of the Libyan people.

Fractions and Tensions inside the Hierarchy of Qaddafi’s Regime

Because of the nature of Qaddafi’s regime in Tripoli, there are a lot of internal tensions in Libya and within the regime structure itself. One of these sets of tensions is between Saif Al-Islam Gaddafi and his father’s circle of older ministers. Libyan ministers are generally divided amongst those that gather around Saif Al-Islam and those that are part of the “old guard.”

There are even tensions between Qaddafi and his sons. In 1999, Mutassim Al-Qaddafi tried to ouster his father while Colonel Qaddafi was outside of Libya. Mutassim Qaddafi holds a Libyan cabinet portfolio as a national security advisor. He is also famously known amongst Libyans for being a playboy who has spent much of his time in Europe and abroad. There is also Khames Gaddafi who runs his own militia of thugs, which are called the Khames militia. He has always been thought of as possible contender for succession too against his other brothers.

There have always been fears in Libya about the issue of succession after Colonel Qaddafi is gone. Over the years, Qaddafi has thoroughly purged Libya of any form of organized opposition to him or prevented anyone else, outside his family, from amassing enough power to challenge his authority.

The Issue of Loyalty and Defection in Libya

Undoubtedly, little loyalty is felt for Qaddafi and his family. It has been fear that has kept Libyans in line. At the level of the Libyan government and the Libyan military it has been both fear and self-interest that has kept officials, good and corrupt alike, in line. That mantle of fear has now been dispelled. Statements and declarations of denunciation against Gaddafi’s regime are being heard from officials, towns, and military barracks across Libya.

Aref Sharif, the head of the Libyan Air Force, has renounced Qaddafi. Interior Minister Abdul Fatah Al-Yunis (Al-Younis), who is from Benghazi (Bengasi) and oversees a branch of the special operations work in Libya, has resigned. Yunis is reported to be Qaddafi’s “number two” or second in charge, but this is incorrect. Abdullah Sanusi, the head of Libyan Internal Intelligence and Qaddafi’s relative through marriage, is the closest thing to a “number two” within the structure of power in Tripoli.

Reports have been made about two Libyan pilots defected to Malt and Libyan naval vessels refusing to attack Benghazi. Defections are snowballing amongst the military and government. Yet, there must be pause to analyze the situation.

The Libyan Opposition

At this point, however, it must be asked who is the “opposition” in Libya. The opposition is not a monolithic body. The common denominator is the opposition to the rule of Qaddafi and his family. It has to be said that “actions of opposition or resistance against an oppressor” and an “opposition movement” are also two different things. For the most part, the common people and corrupt Libyan officials, who harbour deep-seated hate towards Qaddafi and his family, are now in the same camp, but there are differences.

There is an authentic form of opposition, which is not organized, and a systematic form of opposition, which is either external or led by figures from within the Libyan regime itself. The authentic people’s internal opposition in Libya is not organized and the people’s “actions of opposition” have been spontaneous. Yet, opposition and revolt has been encouraged and prompted from outside Libya through social media networks, international news stations, and events in the rest of the Arab World. [2]

The leadership of the internal opposition that is emerging in Libya is coming from within the regime itself. Corrupt officials that have rebelled against Gaddafi are not the champions of the people. These opposition figures are not opposed to tyranny; they are merely opposed to the rule of Colonel Qaddafi and his family. Aref Sharif and Al-Yunis are themselves Libyan regime figures.

It has to also be considered that some Libyan officials that have turned against Qaddafi are doing it to save themselves, while others in the future will work to retain or strengthen their positions. Abdel Moneim Al-Honi, the Libyan envoy to the Arab League in Cairo, can be looked at as an example. Al-Honi denounced Qaddafi, but it should be noted that he was one of the members of the group of Libyan officers who executed the coup in 1969 with Qaddafi and that later in 1975 he himself tried to take power in a failed coup. After the failed coup, he would flee Libya and only return in 1990 after Qaddafi pardoned him.

Al-Honi is not the only Libyan diplomat to resign. The Libyan ambassador to India has also done the same. There is an intention on the part of these officials to be members of the power structure in a Libya after the ouster of Qaddafi:

Libyan Ambassador to India Ali al-Essawi told the BBC that he was quitting, opposing his government’s violent crackdown on demonstrators.

Mr. Al-Essawi was reported to be a Minister in Tripoli and could be an important figure in an alternative government, in case Libyan President Muammar Qadhafi steps down.

The second Libyan diplomat to put in his papers was Tripoli’s Permanent Representative to the Arab League Abdel Moneim al-Honi, who said in Cairo that he had quit his job to “join the revolution” in his country.

“I have submitted my resignation in protest against the acts of repression and violence against demonstrators, and I am joining the ranks of the revolution,” said Mr. Al-Honi. The Second Secretary Hussein Sadiq al Musrati, announced his resignation from China, in an interview with Al-Jazeera, and called on the Army to intervene in the uprising. [3]

Again, these revolting officials, like Al-Yunis and Sharif, are from within the regime. They are not mere diplomats, but former ministers. There is also the possibility that these types of “opposition figures” could have or could make arrangements with external powers.

External Forces at Play in Libya

The governments of the U.S., Britain, France, Germany, and Italy all knew very well that Qaddafi was a despot, but this did not stop any of them from making lucrative deals with Tripoli. When the media covers the violence in Libya, they should also ask, where are the weapons being used coming from? The arms sales that the U.S. and the E.U. have made to Libya should be scrutinized. Is this a part of their democracy promotion programs?

Since rapprochement between the U.S. and Libya, the military forces of both countries have moved closer. Libya and the U.S. have had military transactions and since rapprochement Tripoli has been very interested in buying U.S. military hardware. [4] In 2009, a Pentagon spokeswoman, Lieutenant-Colonel Hibner, affirmed this relationship best: “[The U.S.] will consider Libyan requests for defen[c]e equipment that enables [Libya] to build capabilities in areas that serve our mutual interest [or synchronized U.S. and Libyan interests].” [5] The qualifier here is U.S. interests, meaning that the Pentagon will only arm Libya on the basis of U.S. interests.

In what seems to have happened overnight, a whole new arsenal of U.S. military hardware has appeared in Libya. American-made F-16 jets, Apache helicopters, and ground vehicles are being used inside Libya by Qaddafi. [6] This is a shocking revelation, if corroborated. There are no public records about some of this U.S. military hardware in the the arsenal of the Libyan military. In regards to the F-16s, Libyan jets are traditionally French-made Mirages and Russian-made MiGs.

Silvio Berlusconi and the Italian government have also been strong supporters of Qaddafi’s regime. There is information coming out of Libya that Italian pilots are also being used by the Libyan Air Force. [7] Mercenaries from Chad, Sudan, Niger, and Nigeria are also being used. This has been verified through video evidence coming out of Libya. The Libyan regime is also considering contracting American or European security firms (mercenaries). [8]

The Politics of Al Jazeera

The Libyan government has shut down the internet and phone lines and an information war is underway. Although one of the most professional news networks in the world, it has to be cautioned that Al Jazeera is not a neutral actor. It is subordinate to the Emir of Qatar and the Qatari government, which is also an autocracy. By picking and choosing what to report, Al Jazeera’s coverage of Libya is biased. This is evident when one studies Al Jazeera’s coverage of Bahrain, which has been restrained due to political ties between the leaders of Bahrain and Qatar.

Reports by Al Jazeera about Libyan jets firing on protesters in Tripoli and the major cities are unverified and questionable. [9] Hereto, the reports that Libyan jets have been attacking people in the streets have not been verified. No visual evidence of the jet attacks has been shown, while visual confirmation about other events have been coming out of Libya.

Al Jazeera is not alone in its biased reporting from Libya. The Saudi media is also relishing the events in Libya. Asharq Al-Awsat is a Saudi-owned paper that is strictly aligned to U.S. interests in the Middle East-North Africa (MENA) region. Its editor-in-chief is now running editorials glorifying the Arab League for their decision to suspend Libya, because of the use of force by Tripoli against Libyans protesters – why were such steps not taken for Egypt, Tunisia, Bahrain, or Yemen? Inside and outside the Arab World, the mainstream media is now creating the conditions for some sort of intervention in Libya.

The Role of Foreign Interests in Libya

Qaddafi and his sons have run Libya like a private estate. They have squandered its wealth and natural resources. One of Gaddafi’s son’s is known to have paid the American singer Beyoncé Knowles a million or more U.S. dollars for a private music concert. [10] Foreign corporations also play a role in this story.

The positions and actions of foreign corporations, the U.S., and the European Union in regards to Libya should not be ignored.

Questioning the role of foreign governments and corporations in Libya is very important. The Italian and U.S. governments should be questioned about the role that pilots of Italian nationality and newly bought U.S. weaponry are playing in Libya.

It is very clear that democracy is only used as a convenient pretext against dictators and governments that do not bow down and serve U.S. and E.U. interests. All one needs to do is to just look at the way Mutassim Qaddafi was welcomed with open arms in Washington on April 21, 2009 by Hillary Clinton and the Obama Administration. Upon their meeting, Secretary Clinton publicly said:

I am very pleased to welcome Minister Gaddafi to the State Department. We deeply value the relationship between the United States and Libya. We have many opportunities to deepen and broaden our cooperation and I am very much looking forward to building on this relationship. So Mr.Minister welcome so much here. [11]

What the U.S. and the E.U. want to do now is maximize their gain in Libya. Civil war seems to be what Brussels and Washington have in mind.

The Balkanization of Libya and the Push to Civil War

Qaddafi’s son Saif Al-Islam has made statements on Libyan television about deviant Taliban-like faith-based organizations taking over Libya or attempting to take it over. Nothing is further from the truth. He has also warned of doom and civil war. This is part of the Qaddafi family’s efforts to retain power over Libya, but a path towards civil war is unfolding in Libya.

Amongst the ranking members of the military, Mahdi Al-Arab, the deputy chief of Libya’s military staff, was said to have renounced Qaddafi. [12] Al-Arab, however, has modified his position by saying that he does not want to see Libya spiral into a civil war that will allow foreign intervention and tutelage. [13] This is why Al-Arab prevented the people of his city, Zawarah, from joining the revolt and going to nearby Tripoli. [14]

The drive towards civil war in Libya is fuelled by two factors. One is the nature of Qaddafi’s regime. The other is an external desire to divide and weaken Libya.

Qaddafi has always worked to keep Libyans divided. For years there have been fears that Qaddafi’s sons would start a civil war amongst themselves or that some other high ranking officials could try to jockey for power once Qaddafi was gone. Civil war on the basis of ethnicity, regionalism, or tribalism is not a big threat. Tribes and regions could be co-opted or allied with, but the people that would spark a civil war are regime figures. The threats of civil war arise from the rivalries amongst regime officials themselves. Yet, it must be understood that these rivalries are delibertly being encouraged to divide Libya.

The flames of revolt are being fanned inside Libya. Chaos in the Arab World has been viewed as beneficial in many strategic circles in Washington, Tel Aviv, London, and NATO Headquarters. If Libya falls into a state of civil war or becomes balkanized this will benefit the U.S. and the E.U. in the long-term and will have serious geo-political implications.

All the neighbouring states in North Africa would be destabilized by the events in Libya. West Africa and Central Africa would also be destabilized. The tribal boundaries running in Libya and Chad extend into countries like Niger, Algeria, and Sudan. The chaos in Libya would also have a significant effect on Europe and global energy. Already the events in Libya are being used to validate the drive to control the Arctic Circle and its energy resources. [15]

What Will Be Qaddafi’s End?

It is very likely that Qaddafi will not have as fortunate an exit from power as Ben Ali in Tunisia and Mubarak in Egypt. Finding refuge for Qaddafi will not be easy. In general, Qaddafi is considered a liability by other governments. Saudi Arabia, which can be portrayed as a refuge for Arab dictators, will most likely not give Qaddafi refuge. Libya and Saudi Arabia have bad relations. He is also wanted for investigation in Lebanon. Generally, Qaddafi’s relationship with the leaders of the Arab petro-sheikhdoms in the Persian Gulf is tense and negative. He will not be granted refuge anywhere in the Persian Gulf.

In general, Arab governments will also be afraid to host him. In his efforts to present himself as a champion of the people, he has insulted many of his fellow Arab dictators. There is something to be said, however, when Qaddafi’s statements at Arab League meetings or about Palestine and Iraq are far more popular or candid than the rest of the Arab dictators.

It is highly improbable that any Latin American, European, or ex-Soviet countries will give him refuge. A country in sub-Sahara(n) Africa is the mostly likely place Qaddafi could seek refuge.

His options are limited and he is determined to hold on to power. Civil War seems to be looming in the horizon. It is highly unlikely that he will leave Libya peacefully and the U.S. and its allies have no doubt examined this scenario. On February 23-24, 2010, he met with the leaders of the three biggest tribes in Libya (Werfala, Tarhouna, and Wershfana), to secure their support. [16] His own tribe, Qaddafa is supporting him and it seems that the Madarha and Awlad Slieman tribes are also supporting him. [17]

The Threats of NATO Intervention and U.S. and E.U. Control over Libya

Libya has been in the cross-hairs of the Pentagon for years. According to Wesley Clark, the retired general who was the supreme military commander of NATO, Libya was on a Pentagon list of nations to be invaded after Taliban-controlled Afghanistan. The list included Iraq, Somalia, Sudan, Lebanon, Syria, and lastly Iran. In Clark’s own words:

So I came back to see him [a high ranking military officer in the Pentagon] a few weeks later, and by that time we were bombing in Afghanistan. I said, “Are we still going to war with Iraq?” And he said, “Oh, it’s worse than that.” He reached over on his desk. He picked up a piece of paper. And he said, “I just got this down from upstairs” — meaning the Secretary of Defence’s office — “today.” And he said, “This is a memo that describes how we’re going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran.” [18]

In one way or another all the nations on the list have been attacked directly or indirectly and all of them, but Syria and Iran, have succumbed to the U.S. and its allies. Again, the only exceptions are Iran and its ally Syria. In Lebanon, the U.S. has made partial gains, but it is now receding with the decline of the Hariri-led March 14 Alliance.

Libya started secret negotiations with Washington in 2001 that materialized into formal rapprochement after the fall of Baghdad to British and American troops in 2003. Yet, the U.S. and its allies have always wanted to expand their influence over the Libyan energy sector and to appropriate Libya’s vast wealth. A civil war provides the best cover for this.

Libyans Must Be Aware of the Pretext of Humanitarian Intervention

The Libyan people should be on their high guards. In is clear that the U.S. and the E.U. are supporting both sides. The U.S. and the E.U. are not the allies of the people of the Arab World. In this regard, the U.S. supports Qaddafi on the ground through military hardware, while it also supports the “opposition.” If the so-called Western governments were serious about democracy, they would have cut their business ties to Libya, specifically in the energy sector, before 2011.

Both Washington and the powers in Brussels could co-opt opposition forces. They have supported Gaddafi, but they do not control him or his regime like they controlled Ben Ali in Tunisia and Mubarak in Egypt. Libya is a very different story. The objectives of Washington and Brussels will be to strengthen their control over Libya either through regime change or civil war.

“Actions of opposition to Gaddafi” are strong, but there is no strong organized “opposition movement.” The two are different. Nor is democracy guaranteed, because of the nature of the coalition opposed to Gaddafi, which includes corrupt regime officials.

There is now talk about a “humanitarian intervention” in Libya, similar to Yugoslavia and Iraq. A “no-fly zone” over Libya has been mentioned, as has NATO military intervention. The aims behind such statements are not humanitarian, but are intended to justify foreign interference, which could potentially lead to an invasion. Should this come to fruition, Libya would become an occupied country. Its resources would be plundered and its assets privatized and controlled by foreign corporations as in the case of Iraq.

Today, in Libya and the Arab World the ghosts of Omar Mukhtar and Saladin are still very much alive and active. Getting rid of Gaddafi and his sons alone is not the solution. The entire corrupt system of governance in Libya and the culture of political corruption must be dismantled. At the same time, however, foreign interference or domination should also not be allowed to take root in Libya. If the Libyan people are mobilized and steadfast, they can fight such schemes.

Mahdi Darius Nazemroaya specializes in the Middle East and Central Asia. He is a Research Associate of the Centre for Research on Globalization.

NOTES

[1] “UK Hague: some information that Qaddafi on way to Venezuela,” Reuters, February 21, 2011.
[2] One is taken back by the proliferation of pre-1969 coup Libyan flags. Where did all these flags come from?
[3] “3 Libyan Diplomats resign,” The Hindu, February 22, 2011.
[4] James Wolf, “U.S. eyes arms sales to Libya,” Reuters, March 6, 2009.
[5] Ibid.
[6] Information from sources in Libya; not publicly confirmed yet.
[7] Ibid.
[8] Ibid.
[9] Ibid.; I have been given two explanations for this. The first explanation is that government agents from Libya have been disseminating misinformation to Al Jazeera. This includes reports made to Al Jazeera that jets have been attacking civilians in the streets. Gaddafi has used this to try to discredit Al Jazeera internally in Libya by pointing out to the Libyan people that no jet attacks have occurred and that Al Jazeera is broadcasting misinformation. The second explanation is that Al Jazeera is simply spreading misinformation. Whatever the case, both explanations agree no Libyan jets have attacked protesters yet.
[10] Marine Hyde, “Beyoncé and the $2m gig for Colonel Gaddafi’s son,” The Guardian (U.K.), January 8, 2010; it was Mutassim and not Hannibal Gaddafi that the music concert was for (the article is wrong). The article is not authoritative and has been cited to illustrate that these types of escapades are even vaguely known by the mainstream press in Britain and Western Europe.
[11] U.S. State Department, “Remarks With Libyan National Security Adviser Dr. Mutassim Qadhafi Before Their Meeting,” April 21, 2009: .
[12] Information from sources in Libya; not publicly confirmed yet.
[13] Ibid.
[14] Ibid.
[15] David Ljunggren, “Libya turmoil puts focus on Arctic oil: Greenland,” ed. Robert Wilson, Reuters, February 23, 2011.
[16] Information from sources in Libya; not publicly confirmed yet. I have been told that Qaddafi promised the tribes reform and that he would step down in about one year in time. I was also informed that he claimed that none of his sons would control Libya either.
[17] Ibid.
[18] General (retired) Wesley Clark, “92 Street Y Exclusive Live Interview,” interview by Amy Goodman, Democracy Now, March 2, 2007.

Global Research Articles by Mahdi Darius Nazemroaya

Battles rage in Libya; Gaddafi loyalists launch counter-attack

What is occurring in Libya is a carefully planned armed insurrection rather than a peaceful protest movement as in Tunisia and Egypt.

There are indications that the armed militia groups are supported by the US.

The objective is not democratization but “humanitarian intervention” and regime change, with a view to eventually installing a pro-US government as well as taking control of one of the World’s largest oil producers.

BENGHAZI: Forces loyal to Muammar Gaddafi launched a counter-attack on Thursday, fighting gun battles with rebels who have threatened the Libyan leader by seizing important towns close to the capital.
The opposition were already in control of major centres in the east, including the regional capital Benghazi, and reports that the towns of Misrata and Zuara in the west had also fallen brought the tide of rebellion closer to Gaddafi’s power base.

Gaddafi loyalists attacked anti-government militias controlling Misrata, Libya’s third-biggest city, and killed several people in fighting near the city’s airport.

Soldiers were reported along the roads approaching Tripoli, and fighting broke out in the town of Zawiyah, an oil terminal just 50 kilometres west of Tripoli. Witnesses said people in civilian clothes, who appeared to be pro and anti-Gaddafi forces, were firing at each other in the streets.

“Twenty-three people have been killed and 44 wounded in the Libyan town of Zawiyah after clashes on Thursday between opponents of Gaddafi and forces loyal to him,” Libya’s Quryna newspaper said.

Quoting medical sources, the newspaper said “intense exchange of fire” was preventing people wounded in the clashes from reaching hospitals. It also said some men were removing their wounded relatives from hospitals for fear of them falling into the hands of what it called security battalions, in an apparent reference to Gaddafi loyalists

“It is chaotic there. There are people with guns and swords,” said Mohamed Jaber, who passed through Zawiyah on his way to Tunisia on Thursday.

Anti-government militias were in control of Zuara, about 120 kilometres west of Tripoli, Egyptian construction workers who fled into Tunisia told Reuters on Thursday.

There was no sign of police or military and the town was controlled by “popular committees” armed with automatic weapons.

“The people are in control. Police stations have been burned and we didn’t see any police or army in the past few days,” Egyptian labourer Ahmed Osman said.

A Reuters correspondent was shown about a dozen people being held in a court building who residents said were “mercenaries” backing Gaddafi. Some were said to be African and others from southern Libya.

“They have been interrogated, and they are being kept safe, and they are fed well,” said Imam Bugaighis, 50, a university lecturer now helping organise committees to run the city, adding that they would be tried according to the law, but the collapse of institutions of state meant the timing was not clear

Oil price spikes

 

February 26 2011

The past five global recessions have all followed sharp jumps in the oil price. Investors, traders and analysts this week have all been nervously asking: is a sixth imminent?

The shock in markets has been palpable as the Brent oil price jumped as high as $119.79 a barrel on Thursday, up 16 per cent on the week. With equity and bond markets having – until this week – focused more on the prospects of inflation, some investors now think fears of an economic slowdown could surface.

“In the stagflation debate, markets have been pricing for higher ‘flation’, but it is the ‘stag’ bit that hasn’t been priced in yet … All routes head in the same direction: threats to economic growth,” says Neil Williams, chief economist at Hermes, the UK fund manager.

A key part of the debate will be the ultimate size of the jump in oil prices. As oil prices stabilised on Friday at about $111.50, investors started to sound more sanguine about the outlook for equities, saying that a correction had been long overdue but could be short-lived.

“We see the market acting because of uncertainty, not because of a change in fundamentals. There are actually some good buying opportunities right now,” says Jonathan Xiong, senior director in asset allocation at Mellon Capital Management in San Francisco.

So far the jump in oil prices is nowhere near as large as during previous oil supply shocks. During the first Gulf war in 1990-1991, oil prices jumped 150 per cent in three months. In the 1970s, when oil supply was struck by a series of events, such as the Arab-Israeli war and the Iranian revolution, prices rose more than 200 per cent in a matter of months.

The Brent oil price was about 25 per cent higher at its peak on Thursday from late January, which is when traders say the crucial switch happened whereby the oil market switched from being driven by optimism about demand to concerns over supply.

Traders say that may be the extent of the gains in the price for the time being, with Saudi Arabia moving to make additional supplies available to the market. Ian Taylor, chief executive of Vitol, the largest oil trading house, said this week that “if Opec put more barrels into the market … then we do believe prices should stabilise below current levels and move back to a price range of around $90-$100”.

Echoing that sentiment, Torbjörn Tornqvist, chairman of Gunvor, the fourth-largest oil trader, says “a crude oil price of over $100 per barrel would not appear to be warranted given current fundamentals”.

All bets are off, however, if unrest spreads to another big producer. Mr Tornqvist adds that, given the situation in the Middle East, “the oil price is anybody’s guess”.

Most agree that volatility is likely to be high, since the removal of Libyan supply reduces the market’s buffer against further shocks – either to supply or demand. Oil volatility, as measured by the CBOE oil volatility index, has jumped by 38 per cent since the beginning of the week.

The action in other markets was less pronounced. The S&P 500 was down just 2 per cent on the week, while benchmark 10-year US Treasury yields dropped 0.15 percentage points to 3.43 per cent, benefiting from a flight to quality. The Swiss franc and yen both moved higher as investors sought safe havens.

Equity and bond investors, however, took different views about what persistently high oil prices would mean for markets. Matthew Garman, an equity strategist at Morgan Stanley, says oil passing $125 a barrel acted as a “choking point” for markets in 2008, but that they are more resilient now. He points instead to how recessions or severe growth scares follow an annual increase in oil prices of 85-90 per cent. During the past year, Brent crude prices have risen about 46 per cent.

Mr Xiong speaks for many in equity markets when he says that, unless oil goes to $130 or $140, the recent drop in share prices should soon subside. “Most likely this is going to be a temporary correction. This is a short-term pull-back.”

Bond investors are less sure, fretting not just about oil but also the ongoing problems in the eurozone. Corporate bond markets have been favoured by many fixed income investors, but this week have seen an increase in the spreads that companies pay. Hans Lorenzen at Citi says: “Oil may be the catalyst, but unwinds of crowded positions seem to be driving much of the widening in credit.”

Many worry that rising oil prices will soon feed through into higher inflation, raising the pressure further on central banks to increase interest rates. Mr Williams thinks that would be unjustified but that rate increases are still possible: “Given the geopolitics, how can higher mortgage rates bring down the oil price right now? I’m looking into next year and think that those central banks that tighten rates could see the shortest-lived hikes in living memory.”

OIL FUTURES: Crude Settles Higher As Libya Stays In Focus

Feb 25, 2011

NEW YORK (Dow Jones)–Crude futures settled higher Friday, ending near $98 a barrel as oil markets remain focused on the violent unrest in Libya.

Light, sweet crude for April delivery settled up 60 cents at $97.88 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 78 cents higher at $112.14 a barrel.

Oil prices finished the week up 14%, but the surge came amid a roller-coaster trading environment due to falling oil production in Libya. While Friday’s session remained muted, on Thursday prices whipsawed in an $8 range, reaching two-and-a-half year highs above $103 a barrel. Saudi Arabia and a group of major oil-consuming nations said they had plenty of oil available, however, sending futures into negative territory.

With Moammar Gadhafi’s decades-long rule over the oil-rich nation increasingly imperiled by violent opposition, investors are wary that any new developments in the crisis could send oil prices surging.

“Certainly people don’t want to be short going into the weekend,” said Stephen Schork, head of oil-trading advisor Schork report, referring to bets prices will fall.

The International Energy Agency, which represents many of the world’s largest oil-consuming nations, said the unrest has curtailed up to 750,000 barrels a day of Libya’s 1.6 million barrels a day of oil production. The agency said it would “continue to closely monitor” the situation and could tap strategic stocks when necessary.

Saudi officials are in talks to supply refineries with oil from their spare production capacity as well, which could make up for any short-term disruptions.

“The crucial question remains whether the Gadhafi regime will be toppled within a couple of days with some reasonable succession scheme, or whether the country is heading towards a prolonged civil war,” wrote JBC Energy analysts.

While oil investors remain glued to reports out of Libya, analysts said actions by Saudi Arabia or the IEA to help with any disruptions could tame the recent price surge. The ICE raised margin requirements Friday for its Brent futures contracts, pushing speculative traders to sell some contracts to lock in profits.

Brent futures set a new record for volume on the ICE Thursday, topping a record set Wednesday. Volume in Nymex-traded futures is also elevated.

Brent, the European benchmark, continues to trade at a sharp premium to its U.S. counterpart. The gap between Brent and Nymex-traded West Texas Intermediate crude was recently near $14, due to a large supply glut in the U.S. that has kept a lid on prices in recent weeks.

U.S. crude oil stockpiles rose by 800,000 barrels last week, according to data released Thursday by the Department of Energy.

Front-month March reformulated gasoline blendstock, or RBOB, settled 2.28 cents, or 0.8%, higher at $2.7395 a gallon. March heating oil ended 5.36 cents higher at $2.9309 a gallon.

Financialization Era – how banking welfare captured our economy and ravaged the wealth of the working and middle class. Building profits through financial debt leverage.

 

// //

The American banking system has transformed the economy into one enormous speculative casino with bells and whistles and free cocktails for those that participate.  The problem of course is that most don’t have excess income to drop into the financial slot machines.  Now banking in better times should be seen as the lubricant of the economy.  It allocates capital to areas in the economy where actual real growth was occurring.  Today the financial sector operates as an incestuous industry funding growth in its own industry.  A snake swallowing its own tail but when the inevitable end comes, it is society that is forced to pick up the tab.  Ultimately profits have to come from something real and not just skimming imaginary profits from interest.  This banking welfare is largely a reason why our economy is faltering on the vine and Wall Street banking profits are soaring.  It is no coincidence that as debt pilfered the economy that financial profits soared.  We are living in era that can be dubbed the financialization of the American economy.

Debt leverage and banking profits go hand in hand

Source:      Peak Watch

The above chart really highlights the destruction of our economy in a rising debt era.  In a low debt era financial profits were held in check from the 1950s to the early 1980s.  Financial profits as a share of GDP hovered around one percent.  That all changed in the 1980s and finally reached an apex in our Great Recession.  The financial sector grew its profit margins at a time where more Americans were borrowing and going into debt to finance a lifestyle that was setup for a solid middle class.  Yet the middle class was not there and many used debt to play a game of pretend for a few decades.  All this was playing out during a time when the top 1 percent that were heavily vested in the banking sector were usurping wealth from the real economy.

It is no coincidence that during this time our workforce has shifted from manufacturing to finance:

Source:  Macromon

We have done a complete 180 turn here.  In 1947 the manufacturing sector contributed 25.6 percent to our entire GDP base while the FIRE sector made up 10.5 percent.  In 2009 FIRE makes up 21.5 percent while manufacturing is down to 11.2 percent.  Given the massive fraud, corruption, scandalous rent seeking behavior, and graft why should we be happy with all the bailouts given to this sector?  The financial industry has largely become one giant casino and the stock market no longer reflects the health of the US economy.  Most banking profits are now being made overseas as this nation’s bailouts are going to global banks that are now fueling the growth and speculation abroad.  This is what Americans get in exchange for trillions of dollars of bailouts to what are largely legalized loan sharks.

To further highlight how the financialization of America has harmed the economy we need only look at the stagnant wages of American families.  2000 to 2010 was the first decade where the median household income fell since the Great Depression era of the 1930s.  This all happened during a time of unrestrained financial speculation and growth.  What happened in the 1920s?  Rampant financial fraud by banks so it is no surprise that we ended up in the same place.  The only difference today is that after the crash nothing has changed.  We still have the same financial sector in full operation.  Half of American workers make $25,000 a year or less.  This is such an important point because it demonstrates how the quality of life for many has gone negative in the last ten years.  On this path the financialization of the country will continue to throw more off the middle class pedestal (or at least what remains of it).

To further demonstrate the casino like nature of our stock markets just look at the actual trading volume for various markets over the last 60 years:

Source:  BIS, Wikipedia

This is a fascinating look at how much stock markets have become like casinos.

“In 1956 for example total dollar volume traded on various markets amounted to $534 billion.  At the same time US GDP was $425 billion.  Most of the trading occurred in boring and safe government securities.  Fast forward to 2000.  $508 trillion is traded and US GDP is only $9.8 trillion!”

What is even more insane is the amount being traded on the foreign exchange markets.  $343 trillion was traded when global GDP is roughly $54 trillion.  How can this be?  The global stock markets are largely vacuums sucking the life and productivity from working class people all over the place.  Investment banks make their profits as rent seekers and leech onto productive sectors of the economy that actually make things.

The financialization of our country has led us to a situation where bailouts are handed out to investment banks without any oversight because so much wealth is aggregated in these few hands.  These industries have bought out our government and have laws and regulations that are stripped down to the point where all the above is allowed.  Maximum leverage and if things go bust the taxpayer will be forced by their bought out politicians to bailout these sectors.  Since the debt needs to be repaid, many in their local communities are witnessing rising taxes and cuts to local services.  This happens under the guise that people need to tighten up their belt.  Of course this happens at a time when global trading markets are leveraging their volume tenfold the amount of global GDP.  Don’t be fooled, the real culprits here are the banks and the financial sector.  There is graft in many areas of the economy but this is the nucleus of the mess.  If things keep going forward in this financialization phase there will be no middle class in the US in 10 to 20 years.

U.S. Shut Down ~ March 4th Deadline for the U.S. Government

“Federal spending authority expires March 4. If no plan is enacted to fund the government beyond that date, the government will shut down”

“Once the fiscal 2011 budget is resolved, attention will turn to the broader task of writing a budget for fiscal 2012, which begins Oct. 1, and beyond”

February 20, 2011

GOP-led House passes billions in budget cuts

WASHINGTON – The Republican-led House of Representatives has been relentless during the past week in its determination to chop billions from domestic programs.

While it’s been a messy process, there are signs that unlike past bids, this one could succeed at least partially. The recent week marks the first time in years that lawmakers have been voting consistently to shrink government, even if it means angering constituents and bucking their leaders.

The House, where Republicans outnumber Democrats 241-193, approved a spending package early Saturday that would cut more than $60 billion over the next seven months. The vote was 235-189, with no Democrats voting for it and only three Republicans opposing it. The measure would severely pare such programs as job training and employment grants, community health centers, high-speed rail, diplomatic programs, the Corporation for Public Broadcasting and more.

That meat-ax approach is certain to be diluted in the Senate, where Democrats control 53 of the 100 seats, and President Barack Obama already has threatened to veto the House measure should it reach his desk.

But House Republicans are still expected to have a strong voice in crafting the final package in negotiations with the Senate, and Democrats agree that some cuts are necessary. In fact, Obama’s own new budget targets many of the same programs for cuts.

“Eventually a grand compromise will emerge,” said Lee Hamilton, a former Democratic congressman and now director of the Center on Congress at Indiana University.

The most telling vote this week came Wednesday when the House voted to cut $450 million and kill development of a second engine for the F-35 Joint Strike Fighter.

For years Congress has backed development of the General Electric-Rolls Royce engine – whose contracts are spread far and wide around the country, winning support from many members of Congress – but Wednesday 47 of the 87 Republican freshmen opposed it. So did 19 Democrats and 13 Republicans who voted for funding the engine last year.

House Speaker John Boehner has long supported the project, since it created hundreds of jobs in his southern Ohio district, and he opposed the vote to kill it. But he shrugged it off Thursday, saying the vote was simply the House “working its will.”

That vote illustrates how the rules of budgeting are changing, as many lawmakers are willing to buck their leaders – and their constituents’ narrow interests – for the greater cause of cutting spending and shrinking government.

This year’s budget deficit is expected to reach a record $1.65 trillion, and the national debt is skyrocketing. Republicans won election in November on a pledge to make tough fiscal choices.

“In many ways, the tea party has already made tremendous progress,” said Burdett Loomis, a congressional expert at the University of Kansas.

Not only are GOP freshmen determined to act, but veteran conservatives have waited years to enact changes on the scale they’ve proposed this week.

“For four years, my colleagues have not been able to offer a lot of changes,” said Rep. Jeff Flake, R-Ariz. From 2007 through January, when Speaker Nancy Pelosi was in charge, conservatives rarely were allowed to amend spending bills.

Also driving the Republicans’ resolve is fear of the political future. Several incumbent Republicans lost nominating contests last year to tea party insurgents, and another round of primaries and party conventions are barely a year away.

“We all remember we made promises on spending,” said Rep. Mike Simpson, R-Idaho.

Federal spending authority expires March 4. If no plan is enacted to fund the government beyond that date, the government will shut down.

Few anticipate that happening; many are talking about extending the deadline with short-term stopgap spending bills while talks continue. But Boehner said Thursday that even a short-term extension had to include some cuts.

Once the fiscal 2011 budget is resolved, attention will turn to the broader task of writing a budget for fiscal 2012, which begins Oct. 1, and beyond.

House Republicans feel energized by the past week’s action, and they want strong signs from Obama himself that he’ll buy some of their cuts. “We need his leadership,” said Rep. Wally Herger, R-Calif.

Republicans also want leadership from Boehner.

His open-amendment process, which resulted in 583 amendments being offered, often looked chaotic. Historically, tax and spending bills are considered under rules that strictly limit debate and amendments.

Analysts think that eventually the leaders will convince conservatives to swallow some compromise.

“John Boehner and (House Majority Leader Eric) Cantor are not naive,” said Loomis. “You’ll see tightening up.”

But maybe not as tight as in the past, not after last week’s success, and not with bloggers, tweeters and e-mail available to remind new lawmakers of their mandate.

http://www.spokesman.com/stories/2011/feb/20/gop-led-house-passes-billions-in-budget-cuts/