While factors such as the geopolitics of Iran’s oil embargo, Obama’s banning of the Keystone Pipeline, and oil speculation are effecting the price, but these reasons are not totally to blame.  The truth is, the price of oil has been climbing steadily for more than a decade now, although supply and demand have been relatively constant.

What we are witnessing is the decline of fiat currency, and this is having a direct effect on the price of oil.  In this post, I will try to show why, using a deluge of charts.  The price of oil is increasing as denominated by paper currency, like the Euro and the USD.  Denominated by gold, the price has stayed constant.  Below shows the how oil has trended in Euros, Dollars, and gold; if you remember any of these charts, this should be it:

The sharp increase in the money supply through Treasury Bond sales is the primary driver for both oil and gold prices.  Inflation of prices occurs due to dilution of the currency:

Oil and gold are commodities treated like currency, because they have inherent value that fiat currency does not.  Over a longer term, commodities are more of a “money” than fiat currencies are.

Increasing the monetary supply is achieved by the issuance and repurchase of bonds.  Bonds are treated like assets on either side of the transaction; what is really a liability is treated as an asset on balance sheets:

Monetizing our debt is no recent phenomenon, but the measures the Federal Reserve has gone to in order to keep interest rates low are historic.  Low interest rates have not spurred economic growth; in this regard, do not confuse “market” with “economy.”  In real terms (as opposed to nominal), interest rates in the US are negative, as rates of return are not keeping up with inflation.  These low interest rates discourage saving and encourage spending, at both the individual and government levels, thereby enabling debt accumulation:

Another historic Fed policy is the record purchase of assets - including Treasury Bonds - known as Quantitative Easing.  As I noted last month, through QE1 and QE2) the Federal Reserve has surpassed China as the largest holder of US debt.  We are now our now both lender and debtor to ourselves.  As the maturation of these bonds would flood the market with money and dilute the USD faster, the Fed began a policy of extending the maturation dates of these Treasury Bonds with purchases of new Treasury Bonds.  This enabled a faster pace of debt financing: the Federal Reserve has purchased 91% of 20 and 30-year Treasury Bonds at auction since Operation Twist began in September:

China is, for the most part, out of the US Treasury Bond market as of December:

China is, however, buying gold:

So what happened in December?  To “help” with the European debt crisis the Federal Reserve guaranteed “unlimited” currency swaps to other world central banks, most notably the ECB.  While we issue cash to Europe, we enable them to increase debt issuance by financing its insolvent member nations.  Therefore, global debt has increased exponentially in efforts to right the very world economies fiat currency has destroyed.  Inflation is being hidden on the world’s central banks’ balance sheets in a Bond Bubble, which will pop at maturation.

The Fed is not alone: nearly $7 trillion has been pumped by global central banks into the world stock markets just in the past 4 years.  The aggregate global central bank balance sheet has doubled in four years, after doubling in the 5 years before that.  The central banks have injected $2 trillion in the past four months alone.

As long as this continues, fiat currency will continue its decline.

Commodities like oil and gold don’t behave like fiat currency, as they have inherent value.  As this is hard to explain to the average America consumer, blaming Iran, Keystone, or speculation is the easy way out.  War with Iran, however, won’t solve the problem; neither will building a pipeline, or banning speculation.  As long as debt is monetized to compensate for overspending, and more debt is created (whether through bailouts, stimulus, or bond issuance) to alleviate the effects of inflation created by overspending, this will continue, as more debt cannot solve the debt problem.

Today, the US Dollar suffered its biggest drop in a month.  The upward trend in the price of oil will continue until the world’s monetary rules are rewritten after global fiat currency spirals out of control – as history shows it always does.  This is my greatest fear, as hyperinflation is usually followed by confusion, chaos, revolution, and war.

Which is why I’m not so sure the recent focus on Iran is no mistake after all.

Now, you would expect this progressive government, stacked with stalwart supporters of Keynesian theories of economic controls, would respond immediately, rushing in to do something, try anything, to fix this leak, which daily tars the President’s reputation as a leader.  In fact, many progressives want Obama to be Johnny-on-the-Spot, in the helicopter, with the Louisiana governor, calling on everyone to help, in a collective effort.  It’s hard to disagree with that.

But that’s not this President’s style.  Remember, he’s calm and collected; some might say, laconic.  That’s not the root cause for the delay, though.  You see, Barack Obama’s government is no friend of business, much less Big Oil, not even BP, the nation’s largest energy developer, having invested $40 billion in alternative fuels in the past 5 years.

Now, BP’s received their fair share of due criticism, and will receive the bill handed down by the feds.  The feds, however, are not free of blame themselves.  This Administration’s anti-capitalist sentiments, coupled with the environmentalist sway, has delayed government assistance for BP as they are trying to stop the leak, or assistance for state and local governments, who are trying to protect their shoreline.  Environmentalists believe condemning BP will solve the Oil Spill.  Remember, environmentalists operate on 90% Envy, 9% Irony, and 1% Mental capacities.

But I digress.  Some say this is Barack’s Katrina.  I disagree.  I say it’s Barack’s Pariah.  Unlike the multitudes, I will not criticize the Administration herein for their inaction.  I instead criticize their response, for what lies beneath the surface is ugly.

(Two Kinds of Responses)

Shocking, but not Surprising

One thing was immediate from the feds:  their constant attacks on BP.  On May 3rd, Press Secretary Robert Gibbs repeated Interior Secretary Ken Salazar’s words, saying, “We’re going to keep a boot heel on the throat of BP.”  On May 24th, Salazar said, “This is a BP mess.  It is a horrible mess.  It is a massive and environmental mess.”  Thanks, Ken, for clearing that up.

Following Salazar, Homeland Security Secretary Janet Napolitano said, “We are going to stay on this and stay on BP until it gets done and it gets done the right way.”  Obama’s pointman in the cleanup efforts, Coast Guard Admiral Thad Allen, said he was ”ready to call BP and order them to take the appropriate steps.”  Finally, Senate Majority Whip Dick Durbin said, “The company’s initials now stand for ‘beyond patience.’”  Clever.

What they failed to mention was the federal government’s complete incompetence due to bureaucratic stonewalling.  For example, on May 20th, the Environmental Protection Agency banned BP’s use of Corexit, an oil dispersant, with no acceptable alternatives presented.  On May 21st, Louisiana state and local officials issued emergency permit requests to build sand barriers and berms on the Louisiana coastline; these requests were stalled for more than two weeks while the Army Corps of Engineers “reviewed” their plans.  Whilst they deliberated, oil flooded the Louisiana marshlands.

Needless to say, others in the oil industry have seemed apprehensive to aid BP in their efforts.  With a government like this, with powers to tax, regulate, fine, and jail those with whom they disagree, why would they?  Suggestions that the U.S. military could be used somehow to stop the leak – barring a nuclear blast, which is outright prohibited by some stupid treaty – just goes to show the profane arrogance of our swollen, reactionary government.  In one swift move, Interior Secretary Salazar ordered a six-month moratorium on deep water drilling, affecting nearly three dozen rigs, and thousands of jobs in the Gulf of Mexico.

Realization that American business is better suited to handle the Oil Spill has nothing to do with money.  It is simply a reality that the profit model produces more efficient processes in nearly every market than government can produce.  Not all; but nearly all.  Instead of enabling efforts, though, this government has stood in their way.

Where exactly does the buck stop?

President Obama was on the 25th Anniversary of Larry King Live this week, and Larry asked Obama the following:

KING: What part of it is your baby?  What part of it is the country and not BP?

OBAMA: BP caused this spill.  We don’t yet know exactly what happened.  But whether it’s a combination of human error, them cutting corners on safety, or a whole other variety of variables.  They’re responsible.  So they’ve got to pick up the tab for the cleanup, the damages, fishermen who are unable to fish right in the middle of their most important season.

My job is to make sure that they are being held accountable, that we get to the bottom of how this happened, that they are paying what they’re supposed to be paying, that they cap this well.

He went on to say, “What we have a responsibility for is to make sure that the recovery efforts, mitigation efforts along the coastline, making sure that fishermen and businesses that are being affected are getting paid properly, making sure the local people are being hired.  All those efforts are ones where we can do it better.  What we’ve said is, you’re going to pay.  You will coordinate, BP, with us.”  Additionally, he said he was “furious” with BP, because “this is an example where somebody didn’t think through the consequences of their actions.”

Then yesterday, shockingly, President Obama went back to the Gulf, and “warned” BP about their advertising budget and the payment of dividends to shareholders this year.  When it seems he almost gets it, he lashes back at business.  As a far Leftist, he can’t resist the urge.  Let’s not forget that BP lost eleven men on that rig.  Those lives, as well as the livelihood of thousands and their reputation as a viable business, is worth more than money can buy.

What Could Have Been

In my mind’s eye, I imagine a scenario in which the sitting President told BP it would provide the Gulf state Governors with “whatever they need” to protect their coastlines, including all that FEMA, the Interior Department, the Army Corps of Engineers, and the Department of Homeland Security could provide.  It’s called laissez-faire, and it has its advantages.  Our dual system of government allows for this, and enables the President to focus on other things, namely, at the moment, Israel, Turkey, Iran, the Korea Peninsula, China, the new Japanese Prime Minister, the Greek-caused Eurozone economic crisis, and our own flailing economic situation.

I also imagine the President offering BP “whatever they need” to seal the well, and leave culpability and cost assessments to some day after the leak has stopped.  But that’s not what has happened.  The root cause for this improper response is the lack of business leaders advising the President.  Business is simply not to be trusted by Barack Obama’s government.  Nobody advising the President has ever made payroll.  So instead, the Administration creates barriers instead of solutions, assigns blame instead of duties, and offers rhetoric instead of rationale.

What’s sad for me, personally, is I’m actually glad my Grandpop isn’t alive to see the marshland (and the political party) he loved decimated due to shear human incompetence.

Eric Holder is on it, you guys

On June 1st, Attorney General Eric Holder opened a criminal investigation against BP.  “There are a wide range of possible violations,” thus spake Eric, ”And we will closely examine the actions of those involved in the spill.”  All of this with the leak still going on.  I believe there is a proper balance of the ever-present progress of man and concerns over justice, including, yes, economic, social, and environmental concerns.  This spill hurts us all.  Nobody benefits from this disaster, politically or otherwise.

But I’m tired of talking about it.  If you can’t glean my point-of-view by this point, I could write another 50,000 words, and it still wouldn’t get through your head.  So I’ll let others wrap it up for me.

President Calvin Coolidge, in defense of commerce, sought the proper balance in industry in a 1916 speech to Amherst College, stating:

“The hope of tomorrow lies in the development of the instruments of today.  The prospect of advance lies in maintaining those conditions which have stimulated invention and industry and commerce.  The only road to a more progressive age lies in perfecting the instrumentalities of this age.  The only hope for peace lies in the perfection of the arts of war.  All growth depends upon activity.  Life is manifest only by action.  There is no development physically or intellectually without effort, and effort means work.  Work is not a curse, it is the prerogative of intelligence, the only means to manhood, and the measure of civilization.  Savages do not work.  The growth of a sentiment that despises work is an appeal from civilization to barbarism.”

He understood the role of President is little more than to be the nation’s cheerleader, overseeing a “Bully Pulpit,” in the parlance of Theodore Roosevelt.  That’s all.  We’re not expecting the federal government to provide everything for us, including charity… right?  Right, you guys?  Crickets.

Peggy Noonan wrote a great article earlier this week, saying, ”Even though the federal government in our time has continually taken on new missi0ns and responsibilities, the more it took on, the less it seemed capable of performing even its most essential jobs.”  She finished the article with a warning of her own:  ”When you ask a government far away in Washington to handle everything, it will handle nothing well.”

Insomuch, she channels Alexis de Tocqueville, circa 1835, who highlighted the brilliance of our (former) dual system of government, saying, “A nation may establish a system of free government, but without the spirit of municipal institutions it cannot have the spirit of liberty.”  A teachable moment exists for the federal government in this disaster; enable your state and local governments to govern.  Don’t hold grudges, and remember, elections have consequences.

“I think we’re going to be judged and the President will be judged on our response and our recovery efforts to what we all know now is the worst environmental disaster in our nation’s history, but pounding on a podium isn’t going to fix a hole in the bottom of the ocean.”

~ White House Press Secretary Robert Gibbs, June 4, 2010

A little about myself:  As of now, I am a 28 year old man, and I am neither poor nor rich.  I grew up neither poor nor rich.  I have neither loved nor hated the poor nor the rich.  I am no middle class hero, either, nor would I want to be.  I try to avoid tendencies I observe among poor people, and try to emulate those I observe among the rich.  What I have found may shock you:  rich people get rich by living like they’re poor, and poor people stay poor by living like they’re rich.

Simply put, I don’t rely on envy to dictate my political leanings.  I believe in equality of opportunity and probability of outcome based on effort.  This belief, consequently, puts me at odds with the entire left-wing of the political spectrum.

I’ve never believed in social justice.  I don’t hate the rich, nor do I want to kneecap their efforts; I realize their efforts employ others and benefit society as a whole.  If their efforts do not do those things, barring a monopoly on a sector of the economy, they will begin to lose money.  That is an outcome of natural economic laws; no outside force needs to punish the rich in order to help the poor.

Enter Van Jones.  Dr. Jones recently resigned from his Cabinet post as White House Advisor for “green jobs,” not for his inflammatory remarks in which he called Republicans a–holes, but for signing a “9-11 Truth Petition,” alleging that 9/11 was an inside job, a sick conspiracy theory that doesn’t even pass the simple test of deductive reasoning.  His John Hancock on said document rightly did not meet the White House’s criterion for its Administration officials, and he was promptly shown the door.

What is surprising is that his other public rhetoric had previously met the White House’s standards.  Dr. Jones was an avowed communist, waaay back in 1992, during his time as a civil rights activist.  Due to his influence within the far left wing of the Democratic Party as someone with bold ideas on our energy future, this statement was more than likely overlooked.

In 2004, Van Jones wrote a critically-acclaimed book entitled Green Collar Economy:  How One Solution Can Fix Our Two Biggest Problems. He saw our two biggest problems as global warming and the incarceration of the impoverished.  His solution?  Have inmates manufacture clean energy solutions, such as wind turbines or solar panels, in order to keep that money out of the hands of industry, which he defines on purely racial lines.  Capitalism, in Dr. Jones world, is discrimination.  Please, don’t take my word for it; read the statements he made in a 2004 interview, here.

In 2005, he made the statement that headlines this post.  What exactly does “I’m willing to forego the cheap satisfaction of the radical pose for the deep satisfaction of radical ends” mean?  A shift had occurred.

Dr. Jones had a specific agenda.  In his White House Cabinet position, he controlled $80 billion dollars of stimulus funds, directed at agencies of his choosing.  I’m not making the number up; check it here.  Don’t misunderstand me; I believe in the investments Van Jones is talking about.  That’s what free-market venture capitalism is all about.  I simply do not believe in disincentives, or Van Jones’ methodologies in getting there.

Since 1992, when Van Jones admitted to being a communist, he has done nothing to prove his socioeconomic sentiments shifted.  He began using the right lingo, even inventing the idea of “eco-capitalism.”  But simply investing public dollars in our energy infrastructure is not capitalism.  Van Jones has a deep-seated disbelief in basic free-market principles, which he made clear by describing his opposition as a “gluttonous, warmongering oil industry” and a “military/petroleum complex running the government.”

Van Jones further believed that “Every significant economic advance in this country, whether it’s the internet, or nuclear power (which a lot of people don’t like, for good reason,) highway infrastructure; the government, the federal government, had to get involved to give it a boost to get it started.”

This is not capitalism.  Additionally, the specific economic advances Dr. Jones cites were all developed by, or for the use of,  the U.S. military.  Their public benefits, while plentiful, were secondary in nature.

Furthermore, Van Jones had a distinct way of mixing up racial issues, social justice, and environmentalism, painting a world of false negatives, where we must make choices between what he calls ‘ego apartheid,’ defined as “more cool solar toys for rich people, more hydrogen stuff in Marin, while Oakland falls further behind, choking on the fumes of the last century’s production models,” and what he calls ‘social uplift environmentalism,’ which is “rainbow from the beginning:” “it talks about job creation, as well as environmental clean-ups and environmental health restoration that can unite business, people of color, and environmentalists, that can be pro-markets but pro-markets that are healing markets not pro-markets that destroy life and destroy capital and destroy the environment, that can say – most importantly – we’re pro-US government.”

Van Jones is gone, for now, though this might not be Dr. Jones’ “Last Crusade.”  Near the end of this chapter of his story, though, Van Jones effectively altered his rhetoric to achieve what he called “radical means.”  You will notice this tendency among leftists:  to employ conservative dialect in their favor.  This is part of a strategy the left utilizes to appeal to the political center while marginalizing their opposition.  Mostly, their words are rubbish.

On Wednesday night, as the President addresses the nation, you will hear the words conservatives long to hear, regardless of the legislative direction the President chooses to take, with reconciliation, the public option, co-ops, or exchanges.  You will hear how a public option would “drive down costs” and “encourage competition in the free market.”  You’ll hear him reassure senior citizens and the center by guaranteeing “security and stability” with increased “availability and access,” while reassuring the left that his plan (which he has left entirely up to Congress) while provide “coverage for all.”

By the way, they re-opened the Golden Gate Bridge in Van Jones’ home state today.  Any takers?  I’m open for bids. 

If he wanted to, President Obama could work a bipartisan health care bill.  There are many different conservative ideas on the table, discussed here.  Republicans have even indicated their willingness to allow a “trigger” for the public option if the private health insurance industry did not cooperate to lower costs in five years.  Obama could develop a pliable regulatory framework to ensure universal coverage within private insurance, drop the distinction between employer-based insurance and individually-purchased insurance, and drop the restrictions for buying insurance across state lines, in an attempt to drive down costs without the use of that taxpayer backstop.

There’s no way the President will do that, though.  Bipartisanship in this matter is not part of his agenda.  Frankly, this is not about health care at all.  This is about control.

“f you want total security, go to prison.  There you’re fed, clothed, given medical care and so on.  The only thing lacking is freedom.”
~ Dwight D. Eisenhower

Change, in the form of drastic economic action, has come to America.  The kind of relief we have will determine America’s trajectory for years to come.  Our President-elect is setting the tone, as he presented his agenda at George Mason University last week.  It should be noted the Economics Department at GMU is a known stronghold of libertarian philosophy, and has ties to the Cato Institute – big ups to Cato!  (Sorry.)

It was there Obama said:   “I don’t believe it’s too late to change course, but it will be if we don’t take drastic action as soon as possible.  If nothing is done, this recession could linger for years.”  He then laid out the blueprint for his American Recovery and Reinvestment Program, with estimated costs of $775 billion.  Yesterday, Congress saw his $775 billion, and raised it to $825 billion.

Wow.  The goal for this legislation was “on the President’s desk by January 20;” the goal now seems to be President’s Day, February 16.  Everyone agrees something must be done, but what, and how much should it cost?  What we need is neither big government nor small government, but smart government.  Think iGovt.  Yes, I’m basing my argument on Apple’s success with the iPod and iPhone.  These devices are small, yet big enough to operate without being bulky.  They are complicated, with many moving parts, yet easy to handle with a simple user interface… and for “smart devices,” they have the lead in tech markets worldwide.  Give Apple $300 for an iPod, and you get an iPod.  Buy $300 of Apple’s stock, and see what happens.  “Intelligent government” should follow this model.

Moreover, iGovt purposely seeks common ground, often through a bit of triangulation, in order to get things done for the American people.  iGovt is also unafraid to let bad business fail.  Our federal government cannot be an endless safety net.  Former St. Louis Fed president William Poole echoed this sentiment earlier this week, saying, “What is discipline – where are the hard choices – when does the Fed say our resources are exhausted?”  He went on to say that our current situation at the Fed sounds eerily familiar to the Soviet Union during the Cold War era, where economies were inefficient because they had a soft-budget constraint.  If a firm got into trouble, the banking system would simply give them more money.

That’s no solution at all.  All the money we could physically print cannot inject confidence, the real capital that drives our market.  I usually disagree with Keynesian economics because it can hinder overall growth in the economy; intelligent government, however, considers every public dollar an investment, with the purpose of restoring confidence. 

Mr. Obama’s plan, at face value, supports non-partisan “smart solutions,” as he went on to say, “The American Recovery and Reinvestment Plan won’t just throw money at our problems – we’ll invest in what works. The true test of the policies we’ll pursue won’t be whether they’re Democratic or Republican ideas, but whether they create jobs, grow our economy, and put the American Dream within reach of the American people.”

la (R)esistance

Suddenly, Congressional Republicans, although small in number, have become extremely important at the negotiating table.  Conservatism naturally conflicts with government intervention; if done smartly, however, certain proposals could gain support from these members.  Interventions such as bailouts are nothing more than subsidies with strings attached; this chaps Republicans, sure, but most Republican resistance involves the impending tax burden that government spending inevitably thrusts upon future generations.  Senate Minority Leader Mitch McConnell’s opening remarks of the 111th Congress, January 6, included these words on the subject.  This is, officially, the Republican Party line:

“All of us agree that the economy needs help.  We’re concerned, and taxpayers are concerned.  But if we’re going to appropriate an unprecedented amount of money from the Treasury for this spending bill, it’s absolutely essential that we determine up front whether the spending is going to be wasteful or wise.

“Specifically, the American people should have at least a week to see what this enormous spending plan includes.  President Clinton proposed a $16 billion stimulus his first year in office.  Congress rejected it for being too expensive.  Now Democrats in Congress are proposing a stimulus that could cost taxpayers more than 50 times what President Clinton’s would have cost.

“This potentially $1 trillion bill would be one of the largest spending bills in U.S. history.  It would increase the deficit by half a trillion dollars overnight and deepen an already enormous national debt.  Before we agree to it, the American people need to see the details.  They need to be able to see for themselves whether this is money well spent.  And if lawmakers think that it is, then they need to make a convincing case to the people who are paying for it.” 

It seems to me the Minority Leader is open to intelligent government solutions, as long as the tax burden is approached smartly.  What guidelines would conservatives consider meet their iGovt criteria for taxation?  This isn’t a new question at all.  Two hundred years ago, Adam Smith, the chief advocate of the capitalist model, provided four distinct laws in his classic, The Wealth of Nations:

I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities… II. The tax which each individual is bound to pay ought to be certain, and not arbitrary.  The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person… III. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay… IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the treasury of the state.

An approach using smart stimulus solutions would result in a smaller national public debt, and an easier tax burden at the conclusion of our crisis.  Prudence will render a quicker recovery, bipartisan support, and eventual private ownership of the market. 

Hurdles

When it comes to stimulus, what are the other drawbacks of “going big?”  Can there be too much intervention, i.e. too much money allocated to projects?  Yes; as there is not enough labor to meet the costs of the program, prices for goods and services will rise.  It’s called supply-and-demand.  We see how it works when subsidies inflate the price of certain goods in the market.

The American people support infrastructure spending.  The Obama stimulus package proposes spending three times more on infrastructure projects than is currently spent; where will this money go?  Do we have three times the resources available, ready to lay down gravel, build bridges, etc?  Obviously not, so the market will respond by driving the costs of these goods and services up. 

A federal bill of this size also lacks much needed oversight.  Even New York City mayor Michael Bloomberg agrees that this money would be better spent at the local level.  “You would not have a ‘bridge to nowhere’ if some local municipality had had to pay for it,” he says.  Therefore, prudent iGovt solutions require the growth of projects, as needed, instead of one massive bill.  The system currently used by Congress, that is, passing only mammoth Appropriations bills, prevents oversight and encourages earmarks.  This conflicts with iGovt. 

The problem is, states and cities want to be bailed out, too.  Considering that New York’s citizens give more to the federal government through withheld taxes than they get back, Bloomberg may have a point.

iGovt Solutions

There are viable measures that can be used as long term investments to draw down the federal budget.  For example, the Congressional Budget Office released a report this December on health care that could be a crucial part of our upcoming spending bill.  If the conversion of paper medical records to electronic records was made a requirement for Medicare, the program would cost money upfront, but could save $7 billion in the first five years, and $34 billion over ten years, by reducing medical errors and avoiding unncessary tests and procedures, saving lives in the process.  As 1 of every 6 Americans is uninsured, these offset costs could be used to lower health insurance premiums in the private sector.  Additional money (and time) could be saved if a Doctor could ”visit” and prsecribe medicine over the phone or computer.  These solutions are small enough to implement, with a range of positive outcomes in the health care sector.

One particularly promising proposal within Obama’s stimulus has caught my attention; the modernization (aka the “greening”) of 75% of our nation’s federal office buildings through the use of sustainable resources.  When government spends money on public Research, Development, Testing, and Evaluation (RDT&E), the private sector profits; think NASA.  Cheap solutions discovered by government often spill over into the private sector.

In the process, public and private jobs are created, and our government takes the leadership role in the new clean energy economy.  These buildings could have their monthly energy savings posted online for other companies and households to see.  This could be achieved from not much more than window sealings and Compact Fluorescent Lightbulbs.   Public industry could advance further with Compressed Natural Gas (CNG) company cars and pickups.  Norfolk Naval Station already does this.

The clean energy market is also very attractive to a new generation of Americans.  When it is time for government to retreat, there will be a newly created job market in the private sector, with trained personnel ready to answer the call.  General sustainability is at the core of iGovt, and given that we annually import $700 billion of foreign oil, an unsustainable rate, the energy sector seems like the best place to invest public money.

Divisions Over Bailouts

To be clear, I was opposed to the intial $700 billion bailout when it first passed Congress (see my post Boom Goes Bust).  Republicans, including John McCain, were strong-armed into voting for it, as the naysayers began to forecast impending doom if the measure failed.  In fact, House Republicans still get blamed by the likes of CNN, who last week claimed they “pushed the Dow Jones over the cliff to its biggest point loss ever with their surprise rejection of Henry Paulson’s $700 billion Wall Street bailout.”

Well.  It seems now those pesky House Republicans may have been right after all.  Former Maryland Lt. Gov. Michael Steele, head of GOPAC, says now, “The bailout was a bust.  It should never have happened.  Republicans should have had a little bit more you-know-what to withstand the pressure.  They didn’t and we’re paying for it.”  Surely, standing up against the bill would have set John McCain apart from the big spenders on the Left; it may have changed the election.  Instead, he was left with nothing to differentiate him from George W. Bush, Henry Paulson, or the Democrats, for that matter.

The Republicans got the message, though, when two months later we watched the bailout of the Big Three fail in Congress, only to see President Bush play the scapegoat by swooping in to save them (at least until January 20, right?)  Interesting in this mix-up was Bob Corker’s rise to importance in the Senate.

When it became obvious the House bailout bill would fail in the Senate, Senator Corker, a former businessman from Tennessee, unveiled his own proposal, which would have required viable actions from the Big Three in order to receive funds, but was inevitably dismissed when it lost support from the United Auto Workers (and their Democratic colleagues).  Sadly, politics got in the way; as a junior Senator, Democrats and the UAW denied Corker the chance to champion a feasible bill, Southern Republican Senators took the blame for not supporting the orginal bill, and our crisis continued. 

A bailout by the Executive Branch lacks the necessary oversight expected in any transaction between a lender and a borrower.  It is therefore the Legislative Branch’s duty to act.  While this draws criticism from the Right, something must be done.  Conservatives have to rediscover their role in the 111th Congress (I covered this in my last post, Our Current Crisis).

TARP Solutions

Public pressure is back on.  Senator Claire McCaskill of Missouri recently said in an interview she can’t go into a grocery store without getting bombarded by angry Missourians:  “People are shouting out their cars at me … ‘When are you going to write me a check?’”

Today, Congress approved the remaining $350 billion of the Troubled Asset Relief Program (TARP) funds for use in the Obama Administration.  This was expected; last week, House Financial Service Committee Chairman Barney Frank sent a memo to other lawmakers laying out his plans to place limits on any further use of the TARP.  Frank’s proposal gives Congress more control of the money, requests $40 billion alone for mortgage refinancing, and requires banks to report on how these funds are being used.  Frank also wants to require banks to lend.  Wait, I forget; wasn’t that one of the factors in our current crisis?

Additionally, the Democrats want to provide $275 billion in tax cuts, by all accounts a historically atypical move.  Like I said earlier this week, “Raising taxes discourages growth, and lowering taxes worsens our public debt.”  Republican resistance to the stimulus continues to mount, for obvious reasons.  There must be a better way.

Representative Louie Gohmert of Texas’ 1st District has proposed using the remaining funds for a two-month tax holiday for the American people, averaging to about $2000 per taxpayer.  Some leading conservatives such as Chairman of the 111th Congress’ Republican Conference, Mike Pence of Indiana, and former Speaker of the House Newt Gingrich, support the proposal, while some conservatives debunk his idea, citing a need for permanent tax relief. 

Conservatives also cite a ”wealth effect,” which says that citizens spend when times are good and save when times are bad.  This was certainly proven during the 2008 Economic Stimulus Package; polling showed that only 20% of the $152 billion was spent, while the rest was either saved or used to pay down debt.  It did not provide the proverbial “shot in the arm” of its intention.

I have sent letters to my Congressmen with a TARP proposal of my own, but haven’t heard anything back; you’ll find silence is usually their standard response.  I say, take the remaing TARP money and issue “government gift cards” to all taxpayers.  Citizens would be encouraged to use their current income as they wish to save and pay down debt; the roughly $2000 gift card, however, would expire in one month, ensuring it gets spent.  What’s left would be forfeited back to the Treasury.  The effects of such a measure would surely be felt in the market, with citizens, not government, choosing its winners and losers.

The “iGovt gift card” would look similar to an American Express gift card, would have your name on it, and your account number would simply be your Social Security Number.  This would effectively combine the Gohmert and Obama proposals without tinkering with the existing tax code.  It would also drop the bill of the Stimulus to about $500 billion, making it easier to pass.

How did FDR do it?

Well, hold on a second.  Despite all the acclaim, there is no definitive evidence the New Deal helped in pulling the US out of the Depression.  Members of the Civilian Conservation Corps were only paid a dollar a day and lived in camps; their incentive was simply to eat.  Rather, when the Japanese bombed Pearl Harbor, the nation found the incentive to fight and work hard, in order to strengthen – and save - our nation.

I believe this point in our history calls for energy solutions, which necessitates more American engineers, a population steadily lost to outsourcing.  Now is the time to seize the opportunity that is before us, instead of just throwing federal (or state) money into education, simply to create more bureaucratic, criteria-driven programs.  Money alone does not create incentives for students to choose Science, Technology, Engineering, or Math (STEM) degrees.

The most surefire way to create engineers is to give them a task to do in a field that is reliable.  For years, the business sector has been the easiest way to make money; I think it’s safe to say those days are over.  If there is bait on the other end of a college experience, students will respond.  I believe that bait is the budding new energy sector.  Public money in this case can either be an investment, or it can be wasted.  It’s our choice.

What is the Democrats’ response to Obama’s plan?   More of the same, old, tired solutions:  double subsidies for alternative energy production ($54 billion); extend unemployment benefits ($27 billion) and increase the weekly unemployment check (another $9 billion); subsidize Cobra health insurance for laid off workers ($30.3 billion); along with billions more in various pet projects.  This is the easy answer; none of this will create the demand needed to strengthen our economy.  What’s more, Republican dissent will only create further gridlock.

Jared Bernstein, a senior economist at the Economic Policy Institute, recently stated, “The 1930s recession became the Great Depression because policymakers didn’t take the necessary actions.  Nobody wants to make that mistake this time around.”  While we remember that dark side of our history, let’s look also to the words of President Lincoln, in 1862:  “The dogmas of the quiet past are inadequate to the stormy present.  The occasion is piled high with difficulty, and we must rise with the occasion.  As our case is new, so we must think anew, and act anew.  We must disenthrall ourselves, and then we shall save our country.”

The actions of my father’s father’s father are telling.  They embody a level of commitment and a realization that, yes, we are at war.  He also decided to “eat locally;” today, our food travels an average of 1500 miles before hitting our plates.  Inflated food prices are at their highest in 18 years.  Ethanol mandates receive a lot of the blame for this.  According to the US Department of Agriculture last week, however, food prices have only risen 3% due to the President’s mandate to produce 30 million more barrels of ethanol.  In actuality, due to the high gas prices, it costs more to put that food on your plate than it did yesterday.  Gas prices have caused across-the-board inflation.  Today, we don’t even realize we’re at war. 

So let’s look at some of the facts at hand.  Since 9/11, oil prices have more than quintupled.  It’s not hard to conceive, however, when you look at the roster of the Oil Producing and Exporting Countries, an opaque list of dictatorships and kingdoms known as OPEC:  Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.  Obviously, some of these countries are bigger players than the others, but when you look for the cause of our woes, consider the source. 

These select countries collectively set the price of oil, based on… well, not supply and demand in the United States.  Global oil production is up, and US demand dropped 0.8 percent since last year, so the price should have gone down.  However, since international demand has risen due to India and China’s growing impact, prices have risen due to speculation and global fear.  The past year should be an indication of the direction we are heading:  for the first time in history, more cars were purchased in Asia than in the United States.

I remember paying 85 cents a gallon for gas in high school (in the Nineties) and “driving around” all night.  It was possible to fill your gas tank then for ten dollars or less.  Today, it may cost $300 a month or more just to drive back-and-forth to work.  It is now feasible to pay less a month for your car than you do for the gasoline you put in it. 

We are being held hostage by a handful of foreign countries. 

We are literally being held over a barrel. 

Crisis Evolving 

To date, sixty-five percent of our oil is imported.  Consider the fact that (on May 21, 2008) gas is $3.70 a gallon in America, while in Venezuela, it is 12 cents, in Iran, 40 cents, in Saudi Arabia, 45 cents, and in Libya, 50 cents.  Among these countries, only Saudi Arabia is considered a real ally; more on that later.  Europeans pay more than we do for gas, averaging eight dollars a gallon.  Which raises the question:  would we pay eight dollars for a gallon of gasoline?  I guess it depends on how far you drive to work.  At some point, you will see negative returns on commuting to work.  Let’s suppose OPEC continues to ratchet the price: what would happen when gas costs five, or ten, or twenty dollars a gallon?  Would we pay twenty dollars for a gallon of gasoline?  Hopefully, we won’t someday look back fondly at these days, when gas was less than four dollars a gallon, or wish we could simply get gasoline at all.   

What happens when OPEC says oil is no longer for sale?  What if we reach “peak oil” with our remaining economic allies?  It’s enough to pontificate starting a strategic reserve of your very own.  A gasoline outage wouldn’t just affect your driving, though.  Food prices would skyrocket.  Cross country shipments would come to a screeching halt.  Planes would be grounded.  Work and production nationwide would cease; what would happen to the Stock Market?  Are we seeing these effects now?  If it were to become unavailable, what would people do just for a gallon of gasoline? 

Friends Like These 

Some claim Big Oil is responsible for the high price of gasoline.  According to the Department of Energy data from March 2008, 12% of what you pay at the pump goes to taxes, 16% goes to oil companies for refining, distribution, and service stations, while 72% pays for the crude oil.  That variable is set by OPEC.   

Where does our imported oil come from?  Most comes from Canada.  Saudi Arabia is by far the largest known supply of oil in the world.  Roughly seventeen percent of our oil comes from Saudi Arabia. Behind Canada’s twenty-six percent contribution, Saudi Arabia is the major supplier of American oil.  Without Canada, our silent partner and consequently the second largest known supply of oil in the world, we would be putty in the hands of the Middle East.  We currently have a discordant foreign policy in place throughout the entire region due to oil economy.  Instead of basing our relations on human rights, the foundation of freedom, we lay our money down for the Saudi regime.

It’s no mystery that we have a rocky relationship with Saudi Arabia.  Since their discovery of oil, we have sought business with the regime.  After the death of King Fahd in 2005, half-brother Crown Prince Abdullah advanced to the throne.  This position was sought after by half-brother Prince Nayef, now the Interior Minister, who is seen as the heir apparent of the crown.  As King Abdullah is now 84 and Prince Nayef is 75, this shift could happen sooner rather than later. 

So who is Prince Nayef, and how is he different from King Abdullah?  To peel this onion is to reveal a certain “Saudi paradox.”  King Abdullah is a proponent of rapprochement between Muslims and Non-Muslims, known in Arabic as “taqarub.”  He is an ardent supporter of the theory of “Great Capitalist Peace,” in which free market drives foreign policy.  Prince Nayef, on the other hand, is closer to the Wahhabi than King Abdullah, and as Interior Minister oversees the funding of worldwide extremist political groups like Hamas, and various madrassahs, or schools, throughout Saudi Arabia, Pakistan, and various parts of the world, including Gibraltar, shown below.  Put simply, Salafists teach hatred for the West to young children.  From an early age, children are taught that jihadi martyrdom is divine.  From all this, you can deduce that while we are engaged in a Global War on Terror, we are funding both sides of the war. 

Let me include a couple of historical examples to personify Prince Nayef.  As Interior Minister, he is head of the Commission for the Promotion of Virtue and Prevention of Vice (CPVPV), or as we would call it, the Religious Police.  The CPVPC walk the streets and carry sticks to flog those not praying at proper times, as they are responsible for enforcing Islamic law in Saudi Arabia.  On March 11, 2002, a dormitory at a girl’s school in Mecca caught fire, and the Religious Police beat back schoolgirls as they tried to leave without their proper Islamic headdress.  More than a dozen girls died as a result, an act which Prince Nayef defended, saying the CPCPV prevented “mistreatment” of the girls.  In June 2007, the Religious Police beat a man to death in front of his family on suspicions he possessed alcohol. 

We turn a blind eye to the actions of an evil regime to get that oil, and while these actions vilify Nayef on the home front, his interference in the Global War on Terror makes him a more immediate threat to the United States.  Fifteen of the nineteen 9/11 hijackers were from Saudi Arabia.  In November 2002, he absolved the hijackers of all responsibility, and instead blamed Israel of a conspiracy to rouse the Zionist-Crusader Alliance against the Muslim world.  This is the future of U.S.-Saudi relations. 

Maybe last week we saw the beginning of the end.  With impending out-of-control gas prices, the Department of Energy halted sending oil to the nation’s Petroleum Strategic Reserve, located along the Gulf Coast (in great places like Winnie, Texas), to begin in July and to remain in effect through the rest of 2008.  Experts say this action could lower gas prices as much as twenty-four cents.  Earlier that day, President Bush met with his Saudi friends, including King Abdullah, and asked for an increase in production from the Saudis, which would provide some relief at the pump here in the U.S.  The answer was no.  Our economic ally drew a proverbial line in the desert sand.   

Energy Dependence 

We can have our own opinions, but we can’t have our own facts.  One fact is no new oil refineries have been built in this country since 1976.  Years ago, some in Congress suggested oil companies stalled construction to build up their profits.  Congress does not help in this matter, though, while the oil companies debate the sensibility of investing in new refineries and cite ethanol or other alternative fuels as reasons why not to build them. 

This back-and-forth between Congress and Big Oil is not new.  It came to a head today in a Senate Judiciary Hearing as oil representatives testified on Capitol Hill.  Senator Dick Durbin charged the executives, saying, “You have to sense what you’re doing to us.  We’re on the precipice here, about to fall into recession.  Does it trouble any one of you, the costs you’re imposing on families on small businesses, on truckers?”  The President of Shell Oil retorted that federal restrictions on drilling have caused the problems, stating, “If the nation set a goal of increasing domestic production by two to three million barrels a day by opening up new sources of exploration and production, we could demonstrate to the world that we are in control of our own destiny.” 

The fact I submit is this:  as we search for ways forward, any barrier to energy security of any kind is now a national security issue.  With friends like the Saudis, no additional chokepoints are needed.  To protect America and guarantee our foreign policy is not tainted by our energy needs; we must break our dependence.  We are addicted to oil, and we compromise our values in order to get it.  We cannot gain energy independence overnight, though.  Experts project it would take years to render results from new sources.  As we pay over $200 million dollars a minute on foreign oil, and borrow nearly $500 billion a year to pay for it, we import more than 9 million barrels a day, making up twenty-seven percent of the world’s energy demand.  Ninety-seven percent of our transportation infrastructure depends on oil.  These facts add up to show how extremely vulnerable we are.  

Declaring Independence 

What sacrifices have we really made during this war?  Our dependence on foreign oil has steadily grown, and debate over environmental issues has bitterly sharpened.  To advocate raising Corporate Average Fuel Economy (CAFE) standards brands you a hippie.  Consider the fact that doubling our vehicle efficiency would reduce oil consumption by 3.6 million barrels of oil per day; we import 2 million barrels per day from the entire Middle East.  The somewhat bipartisan cap-and-trade proposal by Senators Warner and Lieberman focuses on climate, and is a start to negotiating a path forward, but are not the absolute answer.  However, when coupled with Senator Domenici’s plan to increase production of oil within the United States, it seems Congress is beginning to realize the dire straits into which we stare.

I believe Americans should be able to judge their own transportation needs, and do what they feel they should do.  More than half a century ago, my great-grandfather found it necessary to produce his own food; that American spirit of sacrifice should be within all of us now.  I think when tackled deliberately, fuel economy can be raised without punishing Americans through tax burdens or through employment woes.  It will take a certain amount of understanding on the part of the American people.  Ultimately, a public and determined deliberation will be necessary between private industry, our government bodies, and the people they serve.  I just hope it happens before it’s too late.