Life After the Oil Crash

Deal With Reality or Reality Will Deal With You
Editor's Note:

Today's update will be a bit tardy. I should have it posted by the mid-to-late afternoon. The stories from yesterday are posted below. You can also check the LATOC Forum if you want up-to-the minute news and info.

-Matt

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Finance, the Economy:

Charles Smith: Our Problems Have Gone Beyond "Incremental Change"

As nothing fundamental has actually changed, the real crises finally hit
home.  Weight gain and lack of exercise has led to diabetes, heart disease
and a host of other ailments; peak oil is creating price increases and even
spot shortages, and the financial house of cards is tottering despite
hundreds of billions wasted trying to prop it up. Despite the clear need
for immediate, fundamental change, we continue pursuing the illusion that
minor tweaks and modifications will "do the trick" . . .  But alas, the
incremental tweaks and tricks are doomed to fail, and the system finally
breaks down. Spot shortages of energy become global shortages, and
financial turmoil spills over into panic and a complete freeze-up of credit.

Wall Street Journal: Fed Ex and UPS Caught in Center of Economic Storm

FedEx Corp. and United Parcel Service Inc. early this year forecast that the
economic downwind soon would change course, generating a recovery in
the delivery business. Instead, the shipping companies have found
themselves at the center of a storm that threatens to worsen. The retail
-spending slump and the housing-market collapse -- two of the strongest
drivers of shipments of manufactured goods and materials -- have drained
the companies' core business. Rising oil prices are eroding their revenues
and show no signs of ebbing.

Houston Chronicle: Electricity Retailer Won't Honor Fixed Rate Contracts

National Power Co. has told customers it will no longer honor many of its
existing long-term power contracts and will increase rates as much as 28
percent in the next 45 days. Customers say the company told them it is
adjusting its rate of 11.9 cents per kilowatt hour to 15.3 cents because of
higher wholesale power prices.

ABC News: States Now Seizing Citizens' Property to Balance Their Budgets

Attorney Bill Palmer represents her and countless other citizens in a class
action lawsuit against the state of California. "They figured the safety
-deposit box was safer than keeping it under the mattress," Palmer said.
"In the case of a lot of citizens, they were wrong, weren't they?" California
law used to say property was unclaimed if the rightful owner had had no
contact with the business for 15 years. But during various state budget
crises, the waiting period was reduced to seven years, and then five, and
then three. Legislators even tried for one year. Why? Because the state
wanted to use that free money. "That's absolutely correct," said California
State Controller John Chiang.  "What we've done here over the last two
decades has been dead wrong."

The Nation: Bernanke's Federal Reserve Freakout

In a speech at Columbia University's Business School Bernanke used the
word "crisis" as in "the foreclosure crisis." Fed chairmen do not generally
use words like "crisis". What's got Bernanke scared is that "about one
quarter of subprime adjustable-rate mortgages are currently 90 days or
more delinquent or in foreclosure. Delinquency rates also have increased in
the prime and near-prime segments of the mortgage market . . ." Spooking
Bernanke is the Fed's discovery that many thousands of delinquencies are
not caused by unemployment or even, perhaps, inability to keep up with
payments but rather by the quick, steep drop in the price of real estate.

WaMu Chief Operating Officer: "We're not done hemorrhaging"

Washington Mutual did not adequately prepare for the sharp, swift
downturn in the housing and credit markets and faces "a very challenging
year for earnings," Chief Operating Officer Steve Rotella said Wednesday.
Rotella also said that WaMu expects its provisions for loan losses to run
"substantially higher" than the level of actual charge-offs in 2008. Credit
costs and delinquencies have risen "dramatically," he added, noting that
credit losses will continue until the housing market begins to stabilize.

CNN Money: Get Ready for More Bank Failures

"We are going to see a fair number of bank failures," said Chip MacDonald,
partner in the capital markets group Jones Day, a law firm headquartered
in Cleveland. "We are in the early innings. For the public banks that have
reported earnings for the first quarter, it has not been a pretty picture."
According to the most recent figures from the FDIC, 76 banks were on
the FDIC's "problem list" as of the end of December. MacDonald said it
would not surprise him if the number is now up to 100 to 125 institutions.

Wall Street Journal: Is the Debt Thaw on Borrowed Time?

Slowly but surely, the grease that lubricates Wall Street's deal machine is
flowing again. A significant improvement in the credit markets since late
March is emboldening more companies to undertake acquisitions and share
buybacks that will be financed largely with debt. At the same time, banks
and Wall Street securities firms, which have freed up space on their
balance sheets to lend again, are encouraging corporate borrowers to take
advantage of lower interest rates while they can.

Alternet: U.S. Homeowners Face Perfect Economic Storm

Falling home prices, rising foreclosures rates, and a slowing economy have
created a perfect storm for homeowners who bought in bubble-inflated
markets, or used subprime, adjustable-rate mortgages to purchase homes.

Washington Post: Luxury Foreclosures on the Rise

The foreclosure signs that have been sprouting up in less-affluent
communities since 2006 are beginning to appear in the well-off suburbs,
attached to houses that once cost $1 million or more. Although those kinds
of homes are in the minority now, real estate agents predict the numbers
will swell. In Loudoun County, 60 houses priced over $750,000 are among
the 93 foreclosures and short sales -- an exit strategy of selling the house
at a loss with the bank's blessing to avoid foreclosure.

Chicago Tribune: Record Condo Numbers Saturate Downtown

Nearly 6,000 condos, by far a record number, are expected to come on
the market in downtown Chicago this year at a time when mortgages are
tougher to get and sales have slowed dramatically, according to a report.
"It's tremendously serious," said Steven Hovany, president of Strategy
Planning Associates Inc., a planning and real estate consulting firm. "What
you are going to see are buildings going into foreclosure."

Wall Street Journal: As Dues Dry Up, the Neighbors Pay

A growing number of homeowner and condominium associations across
the country are raising their fees or putting the brakes on clubhouse
improvements, new landscaping and other shared neighborhood amenities.
The kitty is so low for some that essential services, such as building
maintenance, electricity, trash removal and repairs have been cut. As
community residents lose their homes to foreclosure and new home
building has slowed considerably, many neighborhood associations in the
U.S. are grappling with shrunken budgets.

Charles Hugh Smith: The Worst of the Housing Bust is Yet to Come

The entire edifice of home ownership rests on debt - buyers being able
to borrow large amounts of money for a reasonable rate of interest. The
entire housing bubble was essentially a debt bubble, driven by lending
standards which sank to near-zero, non-U.S. buyers snapping up trillions in
mortgage-backed securities and derivatives, and lax lending regulations
enabling banks to lower their reserves to 1% and spin the mortgages off
their balance sheets. This has all reversed.

Los Angeles Times: Americans: Money Worries are Growing

Nearly 2 out of 5 people say the state of their personal finances is fairly
shaky or very shaky, the poll found. And for the first time since 1993, the
percentage of people who said their finances were very or fairly secure fell
below 60% -- to 57%, said Times Poll Director Susan Pinkus. "Anything
below 60% is sort of like a warning sign of what's coming next," Pinkus said.
"It paints the picture of a very grim, weakened economy . . ."

CNN Money: Economic Misery Spreads

Unemployment and inflation are typically added together to come up with a
so-called "Misery Index." The "Misery Index" was often cited during periods
of high unemployment and inflation, such as the mid 1970s and late 1970s
to early 1980s. And some fear the economy may be approaching those
levels again. The official numbers produce a current Misery Index of only
8.9 - inflation of 3.9% plus unemployment of 5%. That's not far from the
Misery Index's low of 6.1 seen in 1998. But using the estimates on CPI and
unemployment from economists skeptical of the government numbers, the
Misery Index is actually in the teens. Some worry it could even approach
the post-World War II record of 20.6 in 1980. "We're looking at numbers
that are out of whack," said Kevin Phillips, author of the book "Bad Money."

The Trumpet: What Garage Scales Tell Us About the Economy

Struggling with billowing debt and rising prices, faced with a rapidly
deteriorating economy and job market, cash-strapped Americans are
selling family heirlooms, prized possessions, scrap, and just about anything
with value. Internet garage sale sites are booming. According to the
Associated Press, Craigslist, one of the more well-known online flea
markets, has seen the number of for-sale listings soar 70 percent since
last July. Pawnshops too are seeing higher numbers of clients. "People are
cleaning out their houses of gold, silver, whatever, to get money just to fill
their cars with gas," says Nat Leonard, a pawnshop owner in Philadelphia.

Economy Has Entered a Black Hole, Prepare for People to Get Desperate

Relinked at reader request:

Prepare psychologically for a sociopolitical climate of anger, grievance, and
resentment. A lot of individual citizens will find themselves short of
resources in the years ahead. They will be very ticked off and seek to
scapegoat and punish others. The United States is one of the few nations
on earth that did not undergo a sociopolitical convulsion in the past
hundred years. But despite what we tell ourselves about our specialness,
we're not immune to the forces that have driven other societies to such
extremes. The rise of the Nazis, the Soviet terror, the genocides - these
are all things that can happen to any people driven to desperation.

Tom Whipple: We May be Entering the Final Spiral Downwards

Relinked at reader request:

Events are moving faster and faster. Equity markets and the dollar are
dropping. Oil, gas, diesel and commodities are surging as the investment of
last resort. Margin calls are endangering the financial system. Real estate
values and markets are falling. Exotic debt obligations are turning worthless
by the billions. Central bankers have started the printing presses and are
injecting unprecedented billions of "liquidity" into their banking systems in
what so far seems to be a futile effort.

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Food, Soil, Agriculture:

The New Yorker: Is the World's Food System Collapsing?

In his "Essay on the Principle of Population," of 1798, the English parson
Thomas Malthus insisted that human populations would always be
"checked" (a polite word for mass starvation) by the failure of food
supplies to keep pace with population growth. For a long time, it looked as
if what Malthus called the "dark tints" of his argument were unduly, even
absurdly, pessimistic. Now the "dark tints" have returned. The World Bank
recently announced that thirty-three countries are confronting food crises,
as the prices of various staples have soared. From January to April of this
year, the cost of rice on the international market went up a hundred and
forty-one per cent. Pakistan has reintroduced ration cards. In Egypt, the
Army has started baking bread for the general population. The Haitian
Prime Minister was ousted after hunger riots. The current crisis could push
another hundred million people deeper into poverty. Is the world’s
population about to be "checked" by its failure to produce enough food?

Alternet: How One Region Went From Breadbasket to Food Crisis

Dubbed "the breadbasket of India," Punjab is in the throes of a serious
crisis, one that bodes ill for the future of agriculture at a time when the
world faces an acute food crisis. Punjab's grand narrative, a success story
of bumper harvests, conceals dangerous sub-plots of pesticide poisoning,
water shortages, soil salinity, fertilizer runoff, skyrocketing cancer rates,
farmer indebtedness and drug addiction.

Alternet: Why We Face Both Food and Water Crises

We see the worst dispossession in the countries of the South -- tragically --
those countries that could feed themselves. India, for example, was food
self-sufficient. We were able to feed our people with a universal distribution
system, affordable food for all, and agriculture policies that put food first.
Small farmers could make a living. But a decade and a half of globalization's
perverse rules have led to 200,000 farmers committing suicide because
they can't make a living anymore -- all their money goes to Monsanto . . .

Washington Post: Food Costs Jump Most in 18 Years

Rising global grain prices helped spark the largest increase in monthly food
costs in nearly 20 years, as consumers paid more in April for cereals and
baked goods, and the dairy, meat and other animal products that rely on
feedstocks, the government reported yesterday. Food prices have risen at
a seasonally adjusted annual rate of 6.1 percent past three months. The
0.9 percent rise from March to April was the biggest one-month advance
since January 1990, according to the Bureau of Labor Statistics.

NY Times: Indians Find U.S. at Fault in Food Cost

Instead of blaming India and other developing nations for the rise in food
prices, Americans should rethink their energy policy — and go on a diet.
That has been the response, basically, of a growing number of politicians,
economists and academics in this country, who are angry at statements
by top U.S. officials that India's prosperity is to blame for food inflation.

Bloomberg: Thai Rice Breaches $1,000 a Ton for the First Time

The benchmark price for rice exported from Thailand, the world's biggest
supplier, breached $1,000 a metric ton for the first time today as
importers rushed to secure supplies, heightening concern about a global
food crisis. The price of 100% grade B white rice, which is set weekly,
gained 8.4% . . . The price has more than tripled over the past year.

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Oil, Energy, Water, Metals:

Charles Smith: Depletion of Fossil Fuels and Metals is Not "Cyclical"

Depletions are not cyclical. Stuff which gets used up/killed off doesn't
regenerate. Petroleum is in a depletion end-game depicted here in the
classic Hubbert's Peak. A number of other things don't regenerate, at least
not within human lifespans or perhaps ever: ground water, rain forests (a
monoculture tree farm is not a rain forest), species which are ground down
to extinction, even soil. There is a continent-sized area of floating plastic in
the North Pacific which will not disappear for a long time because plastic
degrades very slowly. We can assume the area is only growing in size and
density of waste. Uranium and other metals will contiue to exist, but not in
financially viable concentrations. The energy required to extract them will
exceed their value. At some point this may well be true of oil. It's still there
in small pockets, but it takes more energy to extract it than it contains.

CS Monitor: Get Ready to Spend $6,000 a Year on Gasoline

Even with US airlines cutting flights and SUV sales now tanking, the effects
of expensive oil on the American family could be stark, Wescott's report
says. In 2003, with oil approaching $40 per barrel, the average US family
spent about $1,900 (4.8% of its income) on natural gas, heating oil, and
gasoline. But today at the $120 per barrel level, a family will spend about
$6,000 a year or about 15% of total annual income . . .

Reuters: Oil Could Reach $200 Before Demand Falls Significantly

The price of oil could rise to $200 a barrel in the next two years before it
starts to seriously hit demand, fund manager Tim Guinness said on
Tuesday. "I am increasingly comfortable with the analysis which says the
oil price is going to have to go to $200 before demand is dampened
enough," Guinness told Reuters in an interview.

New York Post: Record Fuel Prices Spur Epidemic of Gas Tank Siphoning

Soaring gas pump prices are fueling an epidemic of gas-tank siphon thieves
- and triggering a boom for locking gas caps to thwart them. With gas
heading toward the $5-a-gallon mark a surge in gas thefts from parked
cars is the latest energy crisis to hit consumers, with widespread police
reports coast to coast of tanks being drained in broad daylight.

Foreign Policy in Focus: Mexico's Battle Over Oil

On April 8, President Felipe Calderon dropped a political bomb on the
Mexican political scene. The Senate received an executive initiative that
would fundamentally change the structure and operations of the oil
company, Pemex. Key operations of the state-owned enterprise would pass
into private hands. With this move, Calderon and his National Action Party
took care to avoid proposing modifications to the Mexican constitution.
National ownership of petroleum is a touchstone of nationalist pride in
Mexico since President Cardenas expropriated private companies in 1938.

LA Times: Los Angeles Prepares for Massive Water Conservation Effort

With vital and often-distant water sources shrinking, Los Angeles officials
today will revive a controversial proposal to recycle wastewater as part of
a plan to curb usage and move toward greater water independence. The
aggressive, multiyear proposal could do much to catch the city up to other
Southern California communities that have launched advanced programs.

NY Times:  In U.S., Metal Theft Plagues Troubled Neighborhoods

Metal scrappers have attacked churches and ransacked homes in this
Midwestern city, leaving entire neighborhoods uninhabitable. Saint
Theodosius Orthodox Cathedral here lost its insurance after a thief stole
copper panels from the roof years ago. Three churches in Cleveland
Heights have been stripped of copper gutters. And in the last few months,
three churches in the North Collinwood neighborhood were stripped of
copper downspouts. Houses, however, are the greatest targets of
commodity scavengers in the United States. Neighborhoods depopulated
by the rising tide of foreclosures make easy targets.

Wall Street Journal: Fast Rising Steel Prices Set Back Big Projects

Relentless increases in the price of steel are halting or slowing major
construction projects world-wide and investments in shipbuilding and oil
-and-gas exploration, setting the stage for a potential backlash against
steelmakers. In Turkey, a construction association said this week it will
begin a 15-day strike in eight cities Thursday to press steelmakers to cut
their prices, which have more than doubled locally since late last year.

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Crimes, Conspiracies, and High-Weirdness:

Houston Chronicle: U.S.-Trained Forces Helping Mexican Drug Cartels

As many as 200 U.S.-trained Mexican security personnel have defected to
drug cartels to carry out killings on both sides of the border and as far
north as Dallas, Rep. Ted Poe, R-Humble, told Congress on Wednesday. The
renegade members of Mexico’s elite counter-narcotics teams trained at
Fort Benning, Ga., have switched sides, contributing to a wave of violence
that has claimed some 6,000 victims over the past 30 months . . .

New Zealand: Money Raised by Bono for Africa Used to Fund Civil Wars

Billions of dollars raised for African famine relief by celebrities Bono and Bob
Geldof have instead funded civil war across the continent, says terrorism
expert Dr Loretta Napoleoni. Her latest book, Rogue Economics, studies the
destabilising effect of economic globalisation, focusing in part on why more
than half a trillion dollars worth of aid sent to Africa since the 1960s failed
to reach the intended destination - developing the nations’ economies.

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