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Repubs Vote for High Gas Prices, More Illegal Immigration and Against "the Troops"
By Ian Welsh, Firedoglake
Posted on July 28, 2008, Printed on July 28, 2008
https://www.alternet.org/bloggers/https://www.firedoglake.com//92919/
On Friday Republicans blocked a bill in the Senate meant to give regulators more ability to reign in oil speculation (h/t The Zoo). While there's some dispute how much if any of the price of oil is based on speculation, there's reason to think it could be a lot.
And current law means that a lot of oil futures trading is done in such
a way that we don't even know how much is being done, let alone if it's
having any effect. At this point the current law is effectively "we
don't even look to see if a crime could be occuring."
Hugh lays this out (365):
3. The Enron exception. Through its political pull with politicians
like then Senator Phil Gramm (R-TX), Enron was able to insert language
into the Commodity Futures Modernization Act of 2000 exempting energy
trading companies from oversight by the Commodities Futures Trading
Commission (CFTC), the government watchdog agency, in the
over-the-counter (OTC) market for "futures-like" instruments.
4. London-Dubai loophole. In January 2006, the Intercontinental
Exchange (ICE) with the blessing of the CFTC (via no-action letters)
began allowing American traders to trade futures contracts on oil
produced and consumed in this country on foreign terminals in the UK
thus circumventing reporting requirements to the CFTC regarding large
trader activity and speculation caps. (ICE also has an OTC component.)
NYMEX joined with the Dubai Mercantile Exchange to launch a similar
venture in May 2007.
5. Swaps
dealer loophole. Under a 1993 CFTC rule, swaps dealers, investment
banks like Goldman Sachs and Morgan Stanley, were given the same status
as traditional futures traders like oil companies and airlines as long
as they were considered to be hedging a "legitimate" risk. This allowed
large financial funds to enter into swaps contracts with investment
banks. A swap contract is essentially an agreement between two parties
in which the first party agrees to pay the second a fixed rate of
interest on an agreed upon amount, and the second party agrees to pay
the first a variable rate on the same amount. The actual principals
offset each other so it's really a mechanism to convert a fixed rate
into a variable rate. The trick is that the investment banks use the
money they receive to buy something that has a variable value, in this
case crude oil futures which they have access to and the funds do not.
This has been yet another way for large amounts of outside capital to
enter into and distort the operation of the futures market in crude.
6. An ineffectual CFTC. This agency is supposed to regulate futures
markets, but in this most anti-regulatory of Administrations, it has
given away so much of its authority that it has no idea what is going
on in the "dark markets" created by ICE and the Enron exception and no
real interest in doing anything about it.
So, the Senate bill, while it doesn't go far enough (I'd slap a
percentage tax on all futures and options commodity trading, probably
of 1% and I'd increase margin requirements significantly), it's
certainly a good basic idea. Even if you don't think futures are doing
a thing to oil prices, no liberal can be for all that trading going on
in the dark--nor should any markets believer, since transparency in
markets is generally considered necessary for them to operate properly,
and this is clearly not a transparent market without information
asymmetries.
But the real problem is liquidity slop, as has been the case
with all bubbles in the past ten years ever since Greenspan slammed the
pedal to the metal back in the late nineties and produced far more
money stock than there are good investment opportunities. First money
went into stocks, and caused the Nasdaq to go from a bull market to a
bubble. When that burst, the money went into two places--housing and
commodities (not just oil, but commodities as a group). The housing
bubble finally burst last year and even more money then flooded into
the commodity markets in general, and specifically into oil. Since
there is a mechanical link between futures markets and oil prices, the
already significant price increases began to bubble over.
Illegal Immigration
While
there are different stages to this increase in commodity prices, it
should be emphasized that commodity prices began their long increase
when Greenspan first released liquidity to end the Asian currency
crisis. That has had a wide variety of effects, the first one of which
was actually an increase in illegal immigration to the United States.
As the prices of staples rose for the poor in Latin American countries,
it hurt people on the margins, people barely making it, the most. When
you're living on pennies a day and the price of food goes up, you're
screwed. So those people headed north and you can see it very clearly
on charts of illegal immigration numbers, where the numbers explode in
the late 90's.
Another consequence is military. Oil money,
the most important form of commodity money, goes in large amounts to
the Muslim world. Not to put too fine a line on it, but the richer they
are, the more support they are able to give various groups the US
doesn't like. Saudi support for Sunni insurgents in Iraq (and Saudi
Arabia is where most of their money comes from), for example, is made
much more feasible by high oil prices. Subsidies to Palestinian
fighters against Israel is made more possible. And so, frankly, is
money for folks like al-Qaeda and the Taliban.
In the 90's
and the first few years of the 2000's really the Muslim world could
only afford to subsidize one war against the West. For a long time that
was the Palestinians, but when the US invaded Iraq, the money shifted
there. The Saudis and other Sunnis sure as heck weren't going to let an
Iranian controlled Shia majority take over without putting up a fight.
That left the Palestinians, deprived of both Iraqi support and much
Sunni support at the same time, in a bad spot and Ariel Sharon used
this period to really put the pressure on, with an eye to enforcing a
unilateral two-state solution during the last and probably greatest
window of Israeli strength and Palestinian weakness.
Sharon's
collapse put an end to that, and his successor horribly bungled the
plan, then picked a fight with Hezbollah Israel couldn't win,
shattering the myth of Israeli military superiority in the process. And
all during this time the price of oil increased and the time came when
the Muslim world could support more than one war against the
West--could subsidize Iraqi resistance, Palestinian resistance and
Afghani resistance all at the same time. Methods honed in Iraq were
moved to Afghanistan and insurgent effectiveness soared along with NATO
casualties. To be sure this wasn't the only factor, but it is a
significant one and often overlooked. A poor Muslim world, one at
$20/barrel, simply cannot afford to subsidize multiple wars. Heck,
after the oil price collapse in the eighties, it could barely subsidize
one, even though that subsidization was done directly by the Saudi
government rather than through private individuals, mosques and
non-profits.
In the old world, in the Clintonian world
before Greenspan broke it, the idea was to keep the periphery poor.
Make sure no one has as many dollars as they want for everything they
need it for, and they won't do things you don't want them doing, or if
they do, they won't be all that effective at it. People had to have
dollars to buy the best weapons, if not an oil producing country, to
buy oil, and also to buy the future. Wanted to be in on the newest
hottest technology? It was happening in the US and if you wanted to
play, you had to play in dollars.
Printing too many
dollars meant an end to that. It meant that the discipline enforced on
countries without hard currencies mostly went away, especially if they
had oil. Countries like Venezuela started getting seriously uppity,
indeed most of Latin America did. Why not? They had money again; they
had resources the US needed more than they needed what the US dollar
could buy.
The price, then, of loose monetary policy by
the world's hegemonic power with the world's primary currency is the
loss of power, the encouragement of its enemies and the flow of
immigrants across borders as they seek to go where they can afford to
live.
The result, oddly, has been that America has lost
pricing power in the things it sells (other than food) and suffered
inflation in the thing it must absolutely import: oil. That's an
inflation riptide - prices of what you sell not rising as fast as
prices of what you have to buy. And since what the US sold most was
really paper assets backed by things like housing and since that market
is actually in a deflationary spiral, really the US is caught between
deflation in what it sells and inflation in what it must buy.
Not
a pretty place to be. Add on top of that increased immigration and the
fact that its enemies have lots of American cash with which to fight
the US, and America is in a world of hurt.
At the end of
the day, power doesn't just come from the barrel of a gun, it comes
from the economic foundations which make supporting power in all its
varieties possible. America is finding out that prosperity bought with
fake money is likewise fake, and that fake prosperity leads to hollow
power.
Ian Welsh is the managing editor of The Agonist and a sometime contributor to FDL and the Huffington Post.