Korea

So what's with North Korea these days? They torpedo a South Korean ship, killing 49, then deny it when confronted by evidence compiled by the UN. To "punish" their neighbor for making "false accusations" they decided to break off all ties and move to a war-time footing, with Kim Jong Ill (the extra "L" has been added deliberately), going on TV and ordering his military to get ready for action.

North Korea is always taking this sort of extreme posturing, which can do nothing but compromise its status as a "rogue" nation and incur further sanctions and hostility from the world. Yet they persist. 

So is a new Korean war in the offing? The Pentagon says it has not even put US troops in South Korea on alert, so they don't seem to be all that concerned. There is, however, an unusually large group of US carriers on the West coast, though no deployments seem headed for Asian waters.

This is likely to be another venting of the 50+ year old conflict, but with a mind like Kim Jong Il involved, one never knows. Frankly, I don't think Kim wants to see just how far carrier based air support has advanced in the last 50 years, but if he does, the six CVBGs currently in Pacific waters will be more than happy to provide a demonstration.

Oil "Spill" Much Greater Than Reported

This goes without saying to any person with an ounce of brains: the mainstream media is not reporting the full extent of the oil disaster underway in the Gulf of Mexico. The very use of the word "spill" to describe it immediately understates the magnitude of the event, which is largely unseen by cameras or satellite photography. For this was no ordinary "spill," an event that originates on the surface. Instead it was a blown out wellhead 5000 feet deep that is gushing oil from a ruptured pipe, the leak area nearly two feet in diameter.

The "Blow Out" refers to the failure of the massive Blow Out Prevention device (BOP) that sits directly atop the wellhead itself. This device has valves that are designed to close and pinch off the pipe passing through it in the event of a problem. In this event, the natural gas and oil that blew up through the pipe seems to have inhibited the BOP from closing off the leak, though it still remains attached to the wellhead itself. Oil is leaking from the mile long pipe that was attached to the top of the BOP, in at least two places now. The attempt to siphon off oil has helped, but only slightly. The main problem facing BP engineers is that the debris infused oil is eroding the steel elements of the BOB itself, and the crimped pipe attached to its top. It is only a matter of time before this erosion threatens to create an even more massive leak, and if the BOP were to be actually blown off the wellhead, then we would be looking at something even worse.

For now, however, it's the pipe attached to the BOP that is gushing oil. A pipe of that diameter can "spill" oil at a rate far beyond that being now reported by BP.  In fact, writer Paul Noel, founder of the New Energy Congress,  revealed that BP managers were celebrating on the rig right before the explosion, and that the company expected the well would yield at least 100,000 barrels per day under controlled conditions. Should the BOP itself fail  or break off due to erosion before they can stop the leak, then the wellhead is said to be "running wild," which is a much greater flow rate than under controlled conditions

And how much oil is the well tapping into, another 25,000 feet beneath the ocean floor? Noel believes the deposit is in the trillions of barrels: "This is an out of control volcano of oil spewing up with 70,000 psi behind it, from a reservoir nearly the size of the Gulf, with an estimated trillions of barrels of oil and gas tucked away."   Other experts have dismissed this saying the reservoir is known to be pressurized at 11,900psi. Perhaps Noel exaggerates to make a point, as the "trillions" of barrels would make it the largest known reservoir on earth, and that seems highly unlikely. (Saudi Arabia has only about 267 billion  barrels in stated "proven" reserves.) But the main point to take away here is that know one seems to really know just how much oil the well tapped into before it blew. What if it is a truly massive reservoir of oil?

It is estimated that 80% of the oil spilled since April 22 is still deep underwater and may never reach the surface. The oil slick we can see is only composed of the lightest elements, and the real sludge of heavy oil is still hanging in a vast plume beneath the surface, now estimated to be ten miles long and eight miles wide. The size of that plume could hold well over 8.5 million barrels of oil already if the 4 barrel per second estimate is correct.  Other analysts at Purdue University say the gush is at least 70,000 barrels per day, but take your pick--it is either 14 times greater than reported or 70 times greater than reported. The truth probably lies somewhere in that range.

So let's be plain here. This amount of oil is not going to "cleaned up" any time soon, if ever. It is likely to remain in the ocean indefinitely, eventually settling to the ocean floor, a mile deep, where it will create a dead zone in the heart of what was once one of the most productive fisheries on earth. This area produces a third of the seafood harvested each year. You can write a huge chunk of that off for the foreseeable future. This oil will go on killing sea life for another decade or more. And it may not be contained for another 90 days, which would make it an unprecedented catastrophe, the greatest "spill" we have ever had. Some articles say it may leak for years if not quickly capped.

The next hurricane that comes churning into the Gulf of Mexico will be much like taking an egg beater to a bowl of motor oil and water, and it will drive the lighter elements ashore wherever it makes landfall. 

Meanwhile, TransOcean, the company operating the well, has put in a court motion to try and limit its damages to $27 Million...this after it was reported that the company collected several hundred million in insurance on the event, in effect, a big profit!

Voila!

Financial magicians were waving their magic wants over the dark pools and swap tables during the weekend. Voila! A 962 Billion rescue package appears, with the Fed opening up a $400 billion dollar swap window to assure dollar liquidity for European banks. The magic answer for the unsustainable, unserviceable sovereign debt in Europe was... wait for it... 962 billion MORE debt, (which is all a loan is). Talk about fighting fire with fire. Where is the money coming from? Answer: printing presses at the ECB and Fed. When will it ever be paid back? Answer: Who cares, it stopped the market collapse again...for a while.

What we saw last week was  a classic battle of computer algorithms and front running high speed trading programs vs a bunch of frustrated, scared humans who were watching all their stops get blown, seeing all their buy and sell offers get cut off by computer generated bids a penny, and sometimes a hundredth of a penny, higher or lower. Meanwhile, Fannie Mae puts in a request for $8.6 billion more tax dollars, this on top of the $10 or $11 billion Freddie Mac asked for a few days ago. The BLS also waved its magic wand and claimed a couple hundred thousand new jobs were "created" by using its "Birth and death model." It cannot point to any of these jobs in the real world. They exist only in the algorithm that created them and put them on the BLS job spreadsheets. In short, they are phantom jobs, magically created by math just like the phantom dollars and euros were magically created by the Fed and ECB.

Voila! No more problems! (Until the next time we need another trillion dollar bailout.)

Isn't capitalism wonderful?

When Will The Cleanup Start?

A sea of toxic oil washes ashore in the Gulf of Mexico, and a sea of toxic debt clots the Adriatic on the shores of Greece. Over here officials speculate that the oil could enter the Gulf Loop current and be carried out into the Atlantic. Over there officials worry the toxic debt will spill out of the Adriatic and into the Mediterranean Sea, infecting the already struggling economies of Portugal, Spain, Italy... 

One problem stems from our insatiable thirst for oil and the lack of any sustainable energy solution. The other arises from our insatiable thirst for profit, as our economies have been running on the sludge of debt for over a decade now. Instead of real productive growth we got "financial innovation," where digital ones and zeros created phantom trillions and packaged them up in great pools of dark matter securities and derivatives, all largely unregulated, and combining to equal the staggering sum of $600 trillion.

In both cases the same question presents itself: when will the cleanup begin? BP was on the hook for only $75 million for the Gulf cleanup mess, though legislation in in the works to raise that loss limit to $10 billion. It's clear who was responsible for the oil in the Gulf of Mexico, and who is responsible for the cleanup. BP didn't come whining to the US government and demand taxpayer dollars, but it remains ironic that fishermen who can no longer fish the Gulf waters will now be seekng cleanup contracts to try and save their businesses. 

By the same token it should be all too obvious who is responsible for all the toxic debt choking the world's economies--just two words--"the banks." With the most unique scheme for making money ever devised, banks get to "create" ten times the amount of money they actually have in their vaults, in effect, "originating" and funding loans at their whim. Every loan made is just the creation of more debt. So the banks created all this massive debt, and then leveraged themselves so deeply in the securities trading game that even a small default rate will sink them, effectively wiping out their equity and rendering them insolvent. When this happened the accounting rules were all simply changed so they could continue to pretend they were still solvent, but accounting semantics cannot cure the underlying sludge of bad debt. 

Now when we look to options for cleanup of this terrible mess, why is it that the banks are not held responsible? Instead the taxpayer was asked to foot the bill as governments rushed to bail out Wall Street and its big banking brethren.  In the greatest calamity to strike the financial markets in over 60 years, the banks still reaped record profits and bonus money.

The people of Greece know who is responsible for the demise of their pensions, civil services, standard of living. They have taken to the streets to make it clear that they do not want their government to commit public funds in the rescue of private  corporations holding the public in debt servitude.

Even a year after the great crisis of 2008-09 what has really been done to hold banks accountable for the enormous harm they have done to society? Nothing. And so the question remains: when will we demand that those responsible for the crisis take full responsibility for the cleanup?  It is clear that congress will not do what is in the interest of the people, for senators and representatives are too easily bought by the banks. And if Greece is any indicator of where we are headed it is becoming equally clear that we will have to take this to the streets over here before anything gets done about it.

In the meantime, we watch thousand point swings in the markets, blasting through stops like toxic oil blasting through well heads, blowing out retirement portfolios one after another. When will Americans stop being idle spectators and start mounting real and effective pressure on their elected officials with a singular demand: start the cleanup, NOW, and hold the people who designed and delivered this crisis responsible for the mess...The Banks.

Sell, Winthorpe! Sell!

Volatility was the name of the game today as fear returned to the casino on Wall Street. At one point the Dow was down nearly 1000 points--and then pulled an immediate about face and staged a 600 point rally. The suddenness of the move had the blogosphere whispering "plunge protection team" as the mainstream media tried to sort out the reason for the precipitous selloff.  A few stocks, like mainstay Proctor & Gamble lost nearly 50% of their value and then rallied to gain most back. One stock Accenture, (and eight other stocks), fell from over $40 per share to just one cent--a single penny--then rallied to the $40 dollar mark again.

Marketwatch.com suggested that a trader had entered $16 billion on a trade instead of $16 million, and that the chaos was simple human error. But a look at charts on the day casts doubt on that story. The selloff started well before any big move to the downside on those suspect stocks. "Officials" huddled in a conference call to see if trades should be canceled or revalued. Whatever happened, you can bet that someone was making some big bucks on the rollercoaster today, but the fact that the market broke through several technical support levels and 50 day moving average lines made professionals nervous.

In the background, oil began to reach the Louisiana shoreline from the Deepwater Horizon spill, and the rioting continued in Greece over the cutbacks to services and pensions that will be imposed for the bailout the country receives. The news that US mortgage guarantor Freddie Mac wanted yet another $10.6 billion to cover recent losses seems to have been lost in the other bad news of the day. The Dow finished down 350+ points, and in the last three days the S&P has lost over 6% of its worth.

Why did the market drop? Because the smart money knows what I and many other astute bloggers have been writing about for months--that the so called "recovery" is sleight of hand manipulation of numbers and reports, and has no real basis in the main street economy. It is a recovery entirely bought and paid for by government dollars and Fed shenanigans. Take government out of housing, for example, and that market would collapse to near nothing in a few weeks time. (Government agencies now underwrite over 95% of all mortgages!) Even with that kind of support housing continues in decline. Take the BLS "Birth and death" algorithm and all those temporary census jobs out of unemployment statistics. Now put back the people who have lost jobs and given up looking. Then the real image of joblessness in this country would be seen approaching 20%. Unemployment is not improving as advertised. Now take the hundreds of thousands who have defaulted on their mortgage, still sitting in the homes but not paying that rent.  That's the money that has driven "consumer spending." People pulled it out of their homes before the crash in home equity loans, now they just default and spend the mortgage payment money on goods and services. This is no recovery in consumer spending. And behind it all, the unsustainable debt remains on the books of the banks, no matter where they choose to hide it or how they choose to value it.

Think 1930 here. Everyone thought things were fine and that the economy had stabilized. The fact was that we had more pain and ten years of depression ahead of us. And until and unless we address our debt problem, (at every level of our society), and see real financial reform, we will have no real solution to the financial crisis that began with Bear Stearns so long ago, and continues to manifest in situations like the 1000 point ping pong game in the Dow. Anyone who saw that deep dip and immediate recovery has to know that big players were behind it with big money, and that the market is as manipulated as a puppet. Tired of seeing your "portfolio" and retirement being jerked around like this because of big institutional traders and their computer algorithms? Get the hell out of this market while you still can. As the fat cat investors yelled in the popular Eddie Murphy movie Trading Places, "Sell, Winthorpe. Sell!"

P.S. The above is not "investment advice." I'm not a trader or investor, just an observer.

How Convenient

On a weekend fresh off the glaring light of the Senate hearings on Goldman Sachs, and as a massive oil slick bore down on our southern wetland coastline, another story suddenly "breaks" and blows these two major issues off the top spot in the news cycle.

What we had last Friday was news that capsulized two of the great issues before us as a society: 1) the vast fraud and malfeasance of the financial sector that designed and delivered the worst economic collapse since the Great Depression, profiting immensely as trillions of taxpayer dollars and fantasy Fed funds gushed to the rescue; and 2) a story that graphically illustrated the importance of our diminishing energy situation, where we now have to drill off shore in water a mile deep and sink pipelines another six miles into the earth's crust to find oil, only to have it blow up in our face and contaminate huge fishing and wildlife areas in a mega disaster--again, all of our own making. The region generates $3 trillion of our $12 trillion annual GDP. The oil could destroy this area and decimate the fishing industries there, not to mention the impact it will have on  wildlife and then oil prices in general, now  at about $86 a barrel. These two major issues remain unsolved, unreformed and gushing like an uncapped well. We have no solutions, and no real plan of action, except to apparently to forget them and worry instead about "terrorists" at the top of the news hour.

By Monday, a scant two days later, what gets top billing in the news? An unexploded bomb in an SUV in Times Square. Our old friend "terrorism" the great non issue of our time, has conveniently made a timely return to sweep the airwaves and cover the enormous issues underlying the two real stories it replaced. Compared to the Goldman-Sachs tip of the iceberg fraud investigation and the Deepwarer Horizon catastrophe, we now get the reflexive much ado about nothing "ongoing coverage" of an incident that injured not one single soul. In fact, combine all terrorist acts ever perpetrated together in one lump sum and you fail to get damage even a fraction of that which the big banks and investment houses delivered to cities, neighborhoods, and homes all across this nation.

But hey, the cover story leads with the big "T" for terrorism. So just like we did during all the other non-issue "terrorist" events under Bush, (Richard Reid's bungled attempt to light his shoes on fire, and other attacks that failed spectacularly,) this latest event was just perfectly timed to distract the media and nation from the two major stories that threaten the very fabric of our nation and society.

As the Church Lady might put it: "How convenient!"

Drill Baby, Drill

Remember the election campaign mantra on the lips of Sara Palin and the Republicans not so long ago? It's ironic the the Deepwater Horizon well blowout catastrophe happened just days after President Obama opened up segments of our Atlantic coast to offshore drilling, in a grudging admission of the problem that has been facing us as a nation for decades now--a problem our own best analysts in the US military say will be painfully evident by 2015. We are running out of the one commodity that has fueled the engine of our economy and way of life for the last 50 to 60 years--cheap oil.

Even though the world financial crisis has slowed demand so much that oil is being tankered for lack of buyers on the open market, the price has been creeping relentlessly upward, closing at $86.39 a barrel last Friday. This while some 210,000 gallons of oil now surge into the Gulf of Mexico from the ruptured Deepwater Horizon blowout.  A post by an engineer has made some ripples on the web in recent days, as he seems to think the problem is much worse than the media or NOAA let on. Here is a passage:

"First, the BP platform was drilling for what they call deep oil. They go out where the ocean is about 5,000 feet deep and drill another 30,000 feet into the crust of the earth. This is right on the edge of what human technology can do. Well, this time they hit a pocket of oil at such high pressure that it burst all of their safety valves all the way up to the drilling rig and then caused the rig to explode and sink. Take a moment to grasp the import of that. The pressure behind this oil is so high that it destroyed the maximum effort of human science to contain it."

Now the massive oil slick is threatening the entire coast of Mississippi, the entire delta region of Louisiana, and the coasts farther east to Florida as well. Prevailing currents could see the contaminants spread into the Atlantic soon. At present, the threatened area generates a full third of our seafood supply in this country. Think prices on oysters, shrimp, crab and other fish are high now? Just wait.

Now a report circulating in official back channels believes the damage could be much more severe. There could be as much as ten times the reported oil leaking into the gulf daily. Our intrepid engineer explains it this way: "If we can't cap that hole that oil is going to destroy the oceans of the world. It only takes one quart of motor oil to make 250,000 gallons of ocean water toxic to wildlife. Are you starting to get the magnitude of this?"

Perhaps the warning is premature, as no one seems to know just how much oil the well has tapped into. If it is a relatively small pocket, then the spill would be self limiting. In fact a similar event occurred in the Timor Sea off the Australian coast, in August of 2009, and while it created a spill nearly the size of the state of Virginia, it eventually sealed up...some five months later. And the Ixtoc spill off the coast of Mexico in 1979 was also much bigger than this one so far, with nearly half a million barrels spilled and a huge swathe of the Texas Gulf coast contaminated. So it remains to be seen if this event becomes a major blow to the world's oceans. The Gulf recovered from the Ixtoc spill in just three years. But the what if in the engineer's warning still gives us pause. What if this is a truly massive pocket of deep oil, so highly pressurized that it blew the drilling rig apart? And what if it grows exponentially and moves from the Gulf to the Atlantic and beyond? This is the worse case scenario, but in any case "drill baby, drill" sounds pretty pathetic now, as hollow as Sara Palin's head.

This is what our insatiable thirst for oil brings upon us--oil that we need because we all need two or three cars parked in our driveways...Oil we need because of the fantasy we call perpetual growth required for our economy. When will the word "sustainable" enter our lexicon of thought, along with other words like "affordable"? And when will we, as a society, ever realize that having enough, is enough, and release this insatiable desire to always have more?

No matter what the size of this latest well blowout, the damage is already registering in lost tourist sales bookings all along the coast. This means more layoffs for the hotels, restaurants, suppliers, all on top of the body blow this has already dealt to the fishing industry in the region.

Good luck at the seafood counter next month.