Tucson Weekly: Censored Stories

This article from tucksonweekly delves on the several issues ignored or deliberately downplayed by the mainstream press for one reason or another, mostly political. Quoting the entire article...

Censored Stories

Project Censored presents the 10 stories the mainstream media ignored over the past year

By CAMILLE T. TAIARA

Just four days before the 2004 presidential election, a prestigious British medical journal published the results of a rigorous study by Dr. Les Roberts, a widely respected researcher. Roberts concluded that close to 100,000 people had died in the invasion and occupation of Iraq.

Most were noncombatant civilians. Many were children.

But that news didn't make the front pages of the major newspapers. It wasn't on the network news. So most voters knew little or nothing about the brutal civilian impact of President George W. Bush's war when they went to the polls.

That's just one of the big stories the mainstream news media ignored, blacked out or underreported during the past year, according to Project Censored, a media watchdog group based at California's Sonoma State University.

Every year, project researchers scour the media looking for news that never really made the news, publishing the results in a book, this year titled Censored 2006. Of course, as Project Censored staffers painstakingly explain every year, their "censored" stories aren't literally censored, per se. Most can be found on the Internet if you know where to look. And some have even received some ink in the mainstream press. "Censorship," explains project director Peter Phillips, "is any interference with the free flow of information in society." The stories highlighted by Project Censored simply haven't received the kind of attention they warrant, and therefore haven't made it into the greater public consciousness.

"If there were a real democratic press, these are the kind of stories they would do," says Sut Jhally, professor of communications at the University of Massachusetts and executive director of the Media Education Foundation.

The stories the researchers identify involve corporate misdeeds and governmental abuses that have been underreported if not altogether ignored, says Jhally, who helped judge Project Censored's top picks. For the most part, he adds, "stories that affect the powerful don't get reported by the corporate media."

Can a story really be "censored" in the Internet age, when information from millions of sources whips around the world in a matter of seconds? When a single obscure journal article can be distributed and discussed on hundreds of blogs and Web sites? When partisans from all sides dissect the mainstream media on the Web every day? Absolutely, says Jhally.

"The Internet is a great place to go if you already know that the mainstream media is heavily biased" and you actively search out sites on the outer limits of the Web, he notes. "Otherwise, it's just another place where they try to sell you stuff. The challenge for a democratic society is how to get vital information not only at the margins but at the center of our culture."

This list should not be taken as gospel; not every article or source Project Censored has cited over the years is completely credible; at least one this year is pretty shaky (see sidebar).

But most of the stories that made the project's Top 10 were published by more reliable sources and included only verifiable information. And Project Censored's overall findings provide valuable insights into the kinds of issues the mainstream media should be paying closer attention to.

1. Bush Administration Moves to Eliminate Open Government

While the Bush administration has expanded its ability to keep tabs on civilians, it's been working to make sure the public--and even Congress--can't find out what the government is doing.

One year ago, Rep. Henry A. Waxman, D-Calif., released an 81-page analysis of how the administration has administered the country's major open government laws. His report found that the feds consistently "narrowed the scope and application" of the Freedom of Information Act, the Presidential Records Act and other key public-information legislation, while expanding laws blocking access to certain records--even creating new categories of "protected" information and exempting entire departments from public scrutiny.

When those methods haven't been enough, the Bush administration has simply refused to release records--even when the requester was a congressional subcommittee or the Government Accountability Office, the study found. A few of the potentially incriminating documents Bush and co. have refused to hand over to their colleagues on Capitol Hill include records of contacts between large energy companies and Vice President Dick Cheney's energy task force; White House memos pertaining to Saddam Hussein's, shall we say, "elusive" weapons of mass destruction; and reports describing torture at Abu Ghraib

The report's findings were so dramatic as to indicate "an unprecedented assault on the laws that make our government open and accountable," Waxman said at a Sept. 14, 2004, press conference announcing the report's release.

Given the news media's intrinsic interest in safeguarding open-government laws, one would think it would be plenty motivated to publicize such findings far and wide. However, most Americans remain oblivious to just how much more secretive--and autocratic--our leaders in the White House have become.

Source: "New Report Details Bush Administration Secrecy" press release, Karen Lightfoot, Government Reform Minority Office, posted on www.commondreams.org, Sept. 14, 2004.

2. Media Coverage Fails on Iraq: Fallujah and the Civilian Death Toll

Decades from now, the civilized world may well look back on the assaults on Fallujah in April and November 2004 and point to them as examples of the United States' and Britain's utter disregard for the most basic wartime rules of engagement.

Not long after the "coalition" had embarked on its second offensive, U.N. High Commissioner for Human Rights Louise Arbour called for an investigation into whether the Americans and their allies had engaged in "the deliberate targeting of civilians, indiscriminate and disproportionate attacks, the killing of injured persons, and the use of human shields," among other possible "grave breaches of the Geneva Conventions ... considered war crimes" under federal law.

More than 83 percent of Fallujah's 300,000 residents fled the city, Mary Trotochaud and Rick McDowell, staffers with the American Friends Service Committee, reported in AFSC's Peacework magazine. Men between the ages of 15 and 45 were refused safe passage, and all who remained--about 50,000--were treated as enemy combatants, according to the article.

Numerous sources reported that coalition forces cut off water and electricity, seized the main hospital, shot at anyone who ventured out into the open, executed families waving white flags while trying to swim across the Euphrates or otherwise flee the city, shot at ambulances, raided homes and killed people who didn't understand English, rolled over injured people with tanks, and allowed corpses to rot in the streets and be eaten by dogs.

Medical staff and others reported seeing people, dead and alive, with melted faces and limbs, injuries consistent with the use of phosphorous bombs.

But you wouldn't know any of this unless you'd come across a rare report by one of an even rarer number of independent journalists--or known which obscure Web site to log onto for real information.

Of course, the media blackout extends far beyond Fallujah.

The U.S. military's refusal to keep an Iraqi death count has been mirrored by the mainstream media, which systematically dodges the question of how many Iraqi civilians have been killed.

Les Roberts, an investigator with the John Hopkins Bloomberg School of Public Health, conducted a rigorous inquiry into pre- and post-invasion mortality in Iraq, sneaking into Iraq by lying flat on the bed of an SUV and training observers on the scene. The results were published in the Lancet, a prestigious peer-reviewed British medical journal, on Oct. 29, 2004--just four days prior to the U.S. presidential elections. Roberts and his team (including researchers from Columbia University and from Al-Mustansiriya University in Baghdad) concluded that "the death toll associated with the invasion and occupation of Iraq is probably about 100,000 people, and may be much higher."

The vast majority of those deaths resulted from violence--particularly aerial bombardments--and more than half of the fatalities were women or children, they found.

The State Department had relied heavily on studies by Roberts in the past. And when Roberts, using similar techniques, calculated in 2000 that about 1.7 million had died in the Congo as the result of almost two years of armed conflict, the news media picked up the story; the United Nations more than doubled its request for aid for the Congo, and the United States pledged an additional $10 million.

This time, silence--interrupted only by the occasional critique dismissing Roberts's report. The major television news shows, Project Censored found, never mentioned it.

Sources: "The Invasion of Fallujah: A Study in the Subversion of Truth," Mary Trotochaud and Rick McDowell, Peacework, Dec. 2004-Jan. 2005; "US Media Applauds Destruction of Fallujah," David Walsh, www.wsws.org (World Socialist Web site), Nov. 17, 2004; "Fallujah Refugees Tell of Life and Death in the Kill Zone," Dahr Jamail, New Standard, Dec. 3, 2004; "Mortality before and after the 2003 Invasion of Iraq," Les Roberts, Riyadh Lafta, Richard Garfield, Jamal Khudhairi and Gilbert Burnham, Lancet, Oct. 29, 2004; "The War in Iraq: Civilian Casualties, Political Responsibilities," Richard Horton, Lancet, Oct. 29, 2004; "Lost Count," Lila Guterman, Chronicle of Higher Education, Feb. 4, 2005; "CNN to Al Jazeera: Why Report Civilian Deaths?," Fairness and Accuracy in Reporting, April 15, 2004, and Asheville Global Report, April 22-28, 2004.

3. Another Year of Distorted Election Coverage

Last year, Project Censored foretold the potential for electoral wrongdoing in the 2004 presidential campaign: The "sale of electoral politics" made No. 6 in the list of 2003-04's most underreported stories. The mainstream media had largely ignored the evidence that electronic voting machines were susceptible to tampering, as well as political alliances between the machines' manufacturers and the Republican Party.

Then came Nov. 2, 2004.

Bush prevailed by 3 million votes--despite exit polls that clearly projected John Kerry winning by a margin of 5 million.

"Exit polls are highly accurate," Steve Freeman, professor at the University of Pennsylvania's Center for Organizational Dynamics, and Temple University statistician Josh Mitteldorf wrote in In These Times. "They remove most of the sources of potential polling error by identifying actual voters and asking them immediately afterward who they had voted for."

The 8-million-vote discrepancy was well beyond the poll's recognized, less-than-1-percent margin of error. And when Freeman and Mitteldorf analyzed the data collected by the two companies that conducted the polls, they found concrete evidence of potential fraud in the official count.

"Only in precincts that used old-fashioned, hand-counted paper ballots did the official count and the exit polls fall within the normal sampling margin of error," they wrote. And "the discrepancy between the exit polls and the official count was considerably greater in the critical swing states."

Inconsistencies were so much more marked in African-American communities as to renew calls for racial equity in our voting system. "It is now time to make counting that vote a right, not just casting it, before Jim Crow rides again in the next election," wrote Rev. Jesse Jackson and Greg Palast in the Seattle Post-Intelligencer.

Sources: "A Corrupt Election," Steve Freeman and Josh Mitteldorf, In These Times, Feb. 15, 2005; "Jim Crow Returns to the Voting Booth, Greg Palast and Rev. Jesse Jackson, Seattle Post-Intelligencer, Jan. 26, 2005; "How a Republican Election Supervisor Manipulated the 2004 Central Ohio Vote," Bob Fitrakis and Harvey Wasserman, www.freepress.org, Nov. 23, 2004.

4. Surveillance Society Quietly Moves In

It's a well-known dirty trick in the halls of government: If you want to pass unpopular legislation that you know won't stand up to scrutiny, just wait until the public isn't looking. That's precisely what the Bush administration did Dec. 13, 2003, the day American troops captured Saddam Hussein.

Bush celebrated the occasion by privately signing into law the Intelligence Authorization Act--a controversial expansion of the PATRIOT Act that included items culled from the "Domestic Security Enhancement Act of 2003," a draft proposal that had been shelved due to a public outcry after being leaked.

Specifically, the IAA allows the government to obtain an individual's financial records without a court order. The law also makes it illegal for institutions to inform anyone that the government has requested those records, or that information has been shared with the authorities.

"The law also broadens the definition of 'financial institution' to include insurance companies, travel and real estate agencies, stockbrokers, the U.S. Postal Service, jewelry stores, casinos, airlines, car dealerships, and any other business 'whose cash transactions have a high degree of usefulness in criminal, tax or regulatory matters'" warned Nikki Swartz in the Information Management Journal. According to Swartz, the definition is now so broad that it could plausibly be used to access even school transcripts or medical records.

"In one fell swoop, this act has decimated our rights to privacy, due process, and freedom of speech," wrote Anna Samson Miranda in an article for LiP magazine titled "Grave New World" that documented the ways in which the government already employs high tech, private industry, and everyday citizens as part of a vast web of surveillance.

Miranda warned, "If we are too busy, distracted, or apathetic to fight government and corporate surveillance and data collection, we will find ourselves unable to go anywhere--whether down the street for a cup of coffee or across the country for a protest--without being watched."

Sources: "PATRIOT Act's Reach Expanded Despite Part Being Struck Down," Nikki Swartz, Information Management Journal, March/April 2004; "Grave New World," Anna Samson Miranda, LiP, Winter 2004; "Where Big Brother Snoops on Americans 24/7," Teresa Hampton and Doug Thompson, www.capitolhillblue.com, June 7, 2004.

5. U.S. Uses Tsunami to Military Advantage in Southeast Asia

The American people reacted to the tsunami that hit the Indian Ocean last December with an outpouring of compassion and private donations. Across the nation, neighbors got together to collect food, clothing, medicine and financial contributions. Schoolchildren completed class projects to help the cause.

Unfortunately, the U.S. government didn't reflect the same level of altruism.

President Bush initially offered an embarrassingly low $15 million in aid. More important, Project Censored found that the U.S. government exploited the catastrophe to its own strategic advantage.

Establishing a stronger military presence in the area could help the United States keep closer tabs on China--which, thanks to its burgeoning economic and military muscle, has emerged as one of this country's greatest potential rivals.

It could also fortify an important military launching ground and help consolidate control over potentially lucrative trade routes. The United States currently operates a base out of Diego Garcia--a former British mandate in the Chagos Archipelago (about halfway between Africa and Indonesia), but the lease runs out in 2016. The isle is also "remote and Washington is desperate for an alternative," wrote veteran Indian journalist Rahul Bedi.

"Consequently, in the name of relief, the U.S. revived the Utapao military base in Thailand it had used during the Vietnam War (and) reactivated its military cooperation agreements with Thailand and the Visiting Forces Agreement with the Philippines," Bedi reported.

Last February, the State Department mended broken ties with the notoriously vicious and corrupt Indonesian military--although human rights observers charged the military with withholding "food and other relief from civilians suspected of supporting the secessionist insurgency, the Free Aceh Movement," Jim Lobe reported for the Inter Press Service.

Sources: "US Turns Tsunami into Military Strategy," Jane's Foreign Report, Feb. 15, 2005; "US Has Used Tsunami to Boost Aims in Stricken Area," Rahul Bedi, Irish Times, Feb. 8, 2005; "Bush Uses Tsunami Aid to Regain Foothold in Indonesia," Jim Lobe, Inter Press Service, Jan. 18, 2005.

6. The Real Oil-for-Food Scam

Last year, right-wingers in Congress began kicking up a fuss about how the United Nations had allegedly allowed Saddam Hussein to rake in $10 billion in illegal cash through the Oil for Food program. Headlines screamed scandal. New York Times' columnist William Safire referred to the alleged U.N. con game as "the richest rip-off in world history."

But those who knew how the program had been set up and run--and under whose watch--were not swayed.

The initial accusations were based on a General Accounting Office report released in April 2004 and were later bolstered by a more detailed report commissioned by the CIA.

According to the GAO, Hussein smuggled $6 billion worth of oil out of Iraq--most of it through the Persian Gulf. Yet the U.N. fleet charged with intercepting any such smugglers was under direct command of American officers, and consisted overwhelmingly of U.S. Navy ships. In 2001, for example, 90 of its vessels belonged to the United States, while Britain contributed only four, Joy Gordon wrote in a December article for Harper's magazine.

Most of the oil that left Iraq by land did so through Jordan and Turkey--with the approval of the United States. The first Bush administration informally exempted Jordan from the ban on purchasing Iraqi oil--an arrangement that provided Hussein with $4.4 billion over 10 years, according to the CIA's own findings. The United States later allowed Iraq to leak another $710 million worth of oil through Turkey--"all while U.S. planes enforcing no-fly zones flew overhead," Gordon wrote.

Scott Ritter, a U.N. weapons inspector in Iraq during the first six years of economic sanctions against the country, unearthed yet another scam: The United States allegedly allowed an oil company run by Russian foreign minister Yevgeny Primakov's sister to purchase cheap oil from Iraq and resell it to U.S. companies at market value--purportedly earning Hussein "hundreds of millions" more.

"It has been estimated that 80 percent of the oil illegally smuggled out of Iraq under 'oil for food' ended up in the United States," Ritter wrote in the U.K. Independent.

Sources: "The UN Is Us: Exposing Saddam Hussein's Silent Partner," Joy Gordon, Harper's, December 2004; "The Oil for Food 'Scandal' Is a Cynical Smokescreen," Scott Ritter, UK Independent, Dec. 12, 2004.

7. Journalists Face Unprecedented Dangers to Life and Livelihood

Last year was the deadliest year for reporters since the International Federation of Journalists began keeping tabs in 1984. A total of 129 media workers lost their lives, and 49 of them--more than a third--were killed in Iraq.

In short, nonembedded journalists have now become familiar victims of U.S. military actions abroad.

"As far as anyone has yet proved, no commanding officer ever ordered a subordinate to fire on journalists as such," wrote Steve Weissman in an update for Censored 2006. But what can be shown is a pattern of tacit complicity, side by side with a heavy-handed campaign to curb journalists' right to roam freely.

The Pentagon has refused to implement basic safeguards to protect journalists who aren't embedded with coalition forces, despite repeated requests by Reuters and media-advocacy organizations.

The U.S. military exonerated the Army of any wrongdoing in its now-infamous attack on the Palestine Hotel--which, as the Pentagon knew, functioned as headquarters for about 100 media workers--when coalition forces rolled into Baghdad on April 8, 2003.

To date, U.S. authorities have not disciplined a single officer or soldier involved in the killing of a journalist, according to Project Censored.

Meanwhile, the interim government the United States installed in Iraq raided and closed down Al-Jazeera's Baghdad offices almost as soon as it took power and banned the network from doing any reporting in the country. In November, the interim government ordered news organizations to "stick to the government line on the U.S.-led offensive in Fallujah or face legal action," in an official command sent out on interim prime minister Eyad Allawi's letterhead and quoted in a November report by independent reporter Dahr Jamail.

And both American and interim government forces detained numerous journalists in and around Fallujah that month, holding them for days.

Sources: "Dead Messengers: How the US Military Threatens Journalists," Steve Weissman, www.truthout.org, Feb. 28, 2005; "Media Repression in 'Liberated' Land," Dahr Jamail, Inter Press Service, Nov. 18, 2004.

8. Iraqi Farmers Threatened by Bremer's Mandates

Historians believe it was in the "fertile crescent" of Mesopotamia, where Iraq now lies, that humans first learned to farm. "It is here, in around 8500 or 8000 B.C., that mankind first domesticated wheat, here that agriculture was born," wrote Jeremy Smith in the Ecologist. This entire time, "Iraqi farmers have been naturally selecting wheat varieties that work best with their climate ... and cross-pollinated them with others with different strengths.

"The U.S., however, has decided that, despite 10,000 years practice, Iraqis don't know what wheat works best in their own conditions."

Smith was referring to Order 81, one of 100 directives penned by L. Paul Bremer III, the U.S. administrator in Iraq, and left as a legacy by the American government when it transferred operations to interim Iraqi authorities. The regulation sets criteria for the patenting of seeds that can only be met by multinational companies like Monsanto or Syngenta, and it grants the patent holder exclusive rights over every aspect of all plant products yielded by those seeds. Because of naturally occurring cross-pollination, the new scheme effectively launches a process whereby Iraqi farmers will soon have to purchase their seeds rather than using seeds saved from their own crops or bought at the local market.

Native varieties will be replaced by foreign--and genetically engineered--seeds, and Iraqi agriculture will become more vulnerable to disease as biological diversity is lost.

Texas A&M University, which brags that its agriculture program is a "world leader" in the use of biotechnology, has already embarked on a $107 million project to "re-educate" Iraqi farmers to grow industrial-sized harvests, for export, using American seeds. And anyone who's ever paid attention to how this has worked elsewhere in the global South knows what comes next: Farmers will lose their lands, and the country will lose its ability to feed itself, engendering poverty and dependency.

On TomPaine.com, Greg Palast identified Order 81 as one of several authored by Bremer that fit nicely into the outlines of a U.S. "Economy Plan," a 101-page blueprint for the economic makeover of Iraq, formulated with ample help from corporate lobbyists. Palast reported that someone inside the State Department leaked the plan to him a month prior to the invasion.

Smith put it simply: "The people whose forefathers first mastered the domestication of wheat will now have to pay for the privilege of growing it for someone else. And with that, the world's oldest farming heritage will become just another subsidiary link in the vast American supply chain."

Sources: "Iraq's New Patent Law: A Declaration of War Against Farmers," Focus on the Global South and Grain, Grain, October 2004; "Adventure Capitalism," Greg Palast, www.tompaine.com, Oct. 26, 2004; "US Seeking to Totally Re-Engineer Iraqi Traditional Farming System into a US Style Corporate Agribusiness," Jeremy Smith, Ecologist, Feb. 4, 2005.

9. Iran's New Oil Trade System Challenges U.S. Currency

The Bush administration has been paying a lot more attention to Iran recently. Part of that interest is clearly in Iran's nuclear program--but there may be more to the story. One bit of news that hasn't received the public vetting it merits is Iran's declared intent to open an international oil exchange market, or "bourse."

Not only would the new entity compete against the New York Mercantile Exchange and London's International Petroleum Exchange (both owned by American corporations), but it would also ignite international oil trading in euros.

"A shift away from U.S. dollars to euros in the oil market would cause the demand for petrodollars to drop, perhaps causing the value of the dollar to plummet," Brian Miller and Celeste Vogler of Project Censored wrote in Censored 2006.

"Russia, Venezuela and some members of OPEC have expressed interest in moving towards a petroeuro system," he said. And it isn't entirely implausible that China, which is "the world's second largest holder of U.S. currency reserves," might eventually follow suit.

Although China, as a major exporter of goods to the United States, has a vested interest in helping shore up the American economy and has even linked its own currency, the yuan, to the dollar, it has also become increasingly dependent on Iranian oil and gas.

"Barring a U.S. attack, it appears imminent that Iran's euro-dominated oil bourse will open in March 2006," Miller and Vogler continued. "Logically, the most appropriate U.S. strategy is compromise with the EU and OPEC towards a dual-currency system for international oil trades."

But you won't hear any discussion of that alternative on the 6 o'clock news.

Source: "Iran Next US Target," William Clark, www.globalresearch.ca, Oct. 27, 2004.

10. Mountaintop Removal Threatens Ecosystem and Economy

On Aug. 15, environmental activists created a human blockade by locking themselves to drilling equipment, obstructing the National Coal Corp.'s access to a strip mine in the Appalachian Mountains 40 miles north of Knoxville, Tenn. It was just the latest in a protracted campaign that environmentalists say has national implications, but that's been ignored by the media outside the immediate area.

Under contention is a technique wherein entire mountaintops are removed using explosives to access the coal underneath--a practice that is nothing short of devastating for the local ecosystem, but which could become much more widespread.

As it stands, 93 new coal plants are in the works nationwide, according to Project Censored's findings. "Areas incredibly rich in biodiversity are being turned into the biological equivalent of parking lots," wrote John Conner of the Katúah branch of Earth First!--which has been throwing all its energies into direct action campaigns to block the project--in Censored 2006. "It is the final solution for 200-million-year-old mountains."

Source: "See You in the Mountains: Katúah Earth First! Confronts Mountaintop Removal," John Conner, Earth First!, November-December 2004.

Follies of Military Intervention, Strange Bedfellows and Unholy Alliances

``The government consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can't get and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time is made good by looting A to satisfy B. In other words, government is a broker in pillage, and every election is sort of an advance auction sale of stolen goods." -- H.L. Mencken Henry Louis Mencken (1880–1956), better known as "H.L. Mencken," 20th century journalist, social critic, a true cynic and freethinker, known as the "Sage of Baltimore."

I am disinclined towards making local political views, analysis or projections, however, when politics becomes a predominant factor in the directional flows of the market, it would be best for us to ruminate on the possible ramifications of the present developments.

The closure of the impeachment proceedings in the House of Congress has left as the only option the extra-constitutional measures to address the legitimacy concerns of the incumbent President. This had been seen with the present calls for military intervention by no less than Former Defense Secretary Renato De Villa, Senator Biazon, Senator Magsaysay and dismayingly my alma mater’s Br. Armin Luistro, FSC, president of the De La Salle University System.

While I am sympathetic to the cause (see July 4 to July 8^th, ``Denouement of the Political Tele-Novela?”), I see the thrust to involve the military in politics as fraught with unintended consequences. I would rather argue on the merits of a regime change via the parliamentary method than a military led junta. Nonetheless it is rather odd, if not callow, to see those opposed to the parliamentary model as advocating for the unelected military regime paragon.

The fundamental problem with this approach is that these unwitting conjurers of regime change via military intervention anticipate that once men in uniform or the ‘intervenors’ move, these political mouthpieces would be the recipient of the wrested power, as had been the case in EDSA I and EDSA II. No one amongst them has ever thought of what would happen if the military decides to usurp power UPON THEMSELVES and/or if the military happens to confront its own shadows...violently!

Like most investors who are glued to the recent past events in gauging the possible outcome or the ``rear view mirror syndrome”, the politicians and their klutz followers believe or hastily presume that a peaceful transition would automatically be the end result of any military led upheaval. In short they are guilty of oversimplifying the causalities of a possible military adventurism.

However, if there are any clues to the mindsets of those aspiring to institute a `new order’, the recent call by a clandestine group or the Young Officers Union of the new generation (YOUng) should serve as a stern warning!

The covert group allegedly would end ‘elite rule and punish all corrupt and cheating officials in government. (So this unelected and unaccountable group will arbitrarily determine who is corrupt and elite by their own measure as the prosecutor, judge and the executioner?!)

According to a published statement, covered by the Philippine Daily Inquirer, by a certain officer whose pseudonym is Lieutenant Colonenl Arsenio Alcantara, ``The new system shall be a total overhaul and encourage genuine nationalists and not the blabbering politicians whose unprincipled and shifting loyalties, like the opportunists ilustrados and traitors in the past, make our present political set-up unstable; a system that shall prevent political dynasties who behave like kings and queens in their own local kingdoms and treat their constituents as their slaves."

Are we so desperate as to be willing to sacrifice ourselves and our families to sanctimonious and messianic totalitarian/fascists regimes which eventually would end up being another `cure worse than the disease’? (Think Myanmar or Kim Sung Il of North Korea!)

Has anyone ever thought of what would be the chances that military interventions would NOT end up in a violent or chaotic struggle such as a civil war? It appears that our collective memories have run very short (Think December 1989-Makati Coup)! And that emotion has gotten the better over alot of us! Would our ‘military intervention’ advocates bear the responsibility of any attendant bloodshed once these fulminations turn into reality? Will they lay claim to blood spilled over their bare hands and knuckles? And over what principles as to justify such actions? Morality? On whose definition of morality; the communists or the facists or some ‘holier than thou’ preachers in between? Or for governments that continually does nothing but extort its constituents as HL Mencken describes above but fails to deliver its due services? (Think New Orleans!)

As Bill Bonner and Addison Wiggins wrote in their book, Financial Day Reckoning (emphasis mine), ``In markets and in politics, he is a fool as often as not –driven by whatever emotion that has taken hold at that moment –fear, greed, wanton confidence, disgust, the desire for revenge, bonhomie...But markets and politics are even more subject to delirium because they involve large groups of people....The madness of crowds has two important features. First, crowds can only know things in their crudest, most dumbed-down form. Since truth is infinitely complex, it follows that what a crowd thinks is almost reduced to a point where it is more lie than truth. Second, though the same emotions beset individuals as well as crowds, a man on his own rarely causes much trouble. He is restrained by family, friends and the physical circumstances. A crowd on the other hand, so magnifies his emotions and so corrupts his ideas that soon the whole society is on the way to hell.”

Talking about the whole society on its way to hell (remember the proverbial saying ‘road to hell is paved with good intentions’), the recent pro-impeachment rally typifies what unholy alliances, clashing ideologues and sleeping with the enemy is all about. Former President Cory Aquino (to recall the same futile public march against the Senate’s Magnificent 12 against the US bases in September 1991), alongside with Susan Roces (widow of deceased presidential aspirant and famed actor FPJ), Senator Panfilo Lacson, communists and leftist advocates Crispin Beltran and Satur Ocampo smacks of these conflicting ideals and temporary yet brittle alliances. To aptly quote economist/TV host Winnie Monsod in her article `Strange bedfellows’ (emphasis mine), ``only the naive can hold the belief that the ouster of Ms Arroyo through people power would make the country better off. Getting into bed with a strange bedfellow in politics may lead to similar results as getting into bed with a strange bedfellow for sex: It may have fatal consequences.”

Finally, it is noteworthy to remark that the recent horse trading as a result of the impeachment proceedings may have reduced the odds of a political upheaval via PGMA’s possible surreptitious deals with former first Lady Imelda Marcos and former President Estrada.

While the former President Estrada representatives have denied it (6 were reported to have been absent during the impeachment proceedings while the wife of former Estrada stalwart and spokesman, Cong. Dilangalen voting an ABSTAIN (?!)), Congresswoman Imee Marcoses’ absence in the impeachment proceedings has this to say ``Don’t blame me for the failure of the opposition in this noble undertaking. I can no longer contribute anything more aside from my signing the [impeachment] complaint despite the tension that has existed between myself and my mother.” According to a report from the Philippine Daily Inquirer, ``Marcos added that it was common knowledge that former First Lady Imelda Marcos had long been supportive of Ms Arroyo.” Talk about political baggage and heavily compromised leadership.

Which leaves the ‘strange bedfellows’ alliance and some inexorable pharisaical, gullible and meddlesome members of the clergy and lay ministers and their halfwit supporters advocating and praying over for military adventurers to attain their warped versions of Utopia.

UGH.

``Those who cannot remember the past are condemned to repeat it." George Santayana, "The Life of Reason" (1905)

Russia, China might consider replacing dollar in bilateral trade - expert

Russia, China might consider replacing dollar in bilateral trade - expert

MOSCOW, August 28 (RIA Novosti, Yelena Fedorova) - Russia and China might consider replacing dollar in bilateral trade, a senior banking expert said on the eve of the Third Russian-Chinese Banking Forum opening Monday.

Garegin Torsunyan, president of the Association of Russian Banks (ARB), said, "There are many ways to establish direct currency exchange and appropriate exchange rates with our Chinese partners."

A certain step in this direction has already been made when Russian and Chinese banks were allowed to open mutual corresponding accounts, he added.

At the same time, Torsunyan said it was difficult to establish direct currency exchange considering that the Russian currency was not convertible abroad.

The use of the dollar in servicing Russian-Chinese trade is the result of Russia's monetary policy, the expert said.

"The fact that we have been using the dollar in our trade with a neighboring country for many years while having a more stable and undervalued domestic currency is the result of our monetary and economic policy," he said.

"The value of the Russian national currency is much higher than we have currently set," he added. "Foreign countries evaluate the Russian currency on the basis of our own evaluation."

According to the expert, such under-evaluation is the result of "inferiority complex" and lack of self-respect in economic sphere.

In mid-term perspective, there is a necessity to form a "base currency" in South East Asia, he added. The Euro program was developed in the 1960s to counter the expansion of the dollar. Therefore, it is logical to form the third and the fourth global currencies, Torsunyan said.

"Until recently we believed it would be the yen, although at present this prospect is doubtful," the banking expert said.

He does not discard the possibility that the yuan or the unified currency of China and South Korea could be chosen as a "base currency" in the future.

What are the Saudis, Americans and the Chinese Afraid of?

Just as the US and European governments were offering to extend their surplus oil reserves to the hurricane blighted ‘thin-as-a-drum-supply margins’ of the US oil industry, now comes a report in the New York Stock Exchange that publicly listed Rowan Companies , an international and domestic contract drilling services company, announced that ``it has been awarded a term drilling contract by the Saudi Arabian Oil Company ("Saudi ARAMCO") for five Class 116-C jack-up drilling rigs to begin operating offshore Saudi Arabia in early 2006...The contract is for a three-year term and contains options for one additional year. Each rig is currently under contract in the Gulf of Mexico. The relocation of rigs to the Middle East will begin late in the fourth quarter of this year and should be completed by the end of the first quarter of 2006.” reports the yahoo biz news.

The contract according to Businessweek magazine was about 30% to 50% higher than a year ago which means that Saudi Aramco practically outbid the other energy companies from which the rigs are currently located at the Gulf of Mexico.

The $64 billion dollar question is, WHY would Saudi Aramco operate or invest in FIVE OFFSHORE or underwater oil projects in 2006-2009 and NOT ONSHORE rigs when they publicly claimed to have more than sufficient onshore supplies? Would they not prefer to operate on their cheaper oil first? Or are they running out of cheap oil that impelled them go offshore? Hmmm. This development more than meets the eye!

While admittedly Saudi Officials say that ``the Organisation of the Petroleum Exporting Countries will be unable to meet projected western demand in 10 to 15 years.” notes the Financial Times, it appears that the OFFSHORE drilling projects are portentous of LESSER oil supplies relative to demand rather than the oil bear’s claims of growing supplies.

And to consider today’s rig rental rates have surged to $400,000 a day(!!) for the first time according to Bloomberg’s Bruce Blythe for the prized rigs that ``can drill in waters as deep as 10,000 feet (3,048 meters)”. There are only about 20 rigs around the world that has the capacity to drill the deepest waters. For rigs that are designed for waters 5,000 feet (1,524 meters) ``averaged $210,000 (!!) a day during the second quarter, up 57% for a year earlier according to ODS-Petrodata.”

Source: Energy Information Administration

The chart above courtesy of the Elliott Gue’s The Energy letter, shows that drilling activities have scaled to almost 20 year highs! While Oil drilling activities may foreshadow more supplies hence a bearish oil market, coupled with recent data showing US oil supplies above 5 year average, paradoxically, oil prices have continually spiked to fresh record highs. Why? According to Elliott Gue, ``The reason that high inventories and massive drilling activity aren’t pushing prices lower is simple: Demand growth is extraordinarily strong and oil companies are having a very hard time developing new supplies.”

Aside from the global demand which I previously discussed in my previous newsletters, here is another eye opener; the US and the Chinese governments have commenced on stockpiling of more oil!!

According to the recently enacted bill, the Energy Policy Bill of 2005, which President George W. Bush signed last August 8, 2005, the Strategic Petroleum Reserves (SPR) would be increased to 1 billion barrels of oil from the present 700.6 million barrels!

In addition, China’s government is in the process of building its own version of the strategic petroleum reserves, according to Larry Edelson of Safe Money Report, ``China is building its first-ever strategic oil reserves. Indeed, China has already acknowledged it will start pumping the oil into the tanks right away — starting September 1...Just four sites — in Zhenhai, Daishan, Xingang and Huangdao — have the capacity for a total of 100 million barrels. And oil should start flowing into these tanks in just a few days.”

If we are to piece the puzzles together, we find the following interesting developments:

First, Saudi Arabia is diversifying out of its traditional reserves which could well be an impending sign of depletion from its current oil reserves.

Second, despite the tremendous increases in the daily lease rates for oil rigs to record levels, oil companies have shown no let up in the search for oil and energy alternatives. Nonetheless, Saudi Arabia bidded up by about 30% to 50% more in contract prices to secure 5 offshore oil rigs which could again be construed as a sign of desperation??!!

Third, the recently enacted US Energy Policy Act of 2005 signed by President George W. Bush last month signifies the US government’s plan to underwrite additional reserves to the Strategic Petroleum Reserves from 700.6 million barrels to 1 billion barrels or by additional 43%.

Lastly, China has been in the rush to build its strategic petroleum reserves in 4 locations with a capacity of 100 million barrels with oil flowing into these reserves beginning this month.

Question: If oil is believed to be `speculatively high’, what do these major oil players fear from to initiate drastic actions to secure supply at current levels? Hmmmm. Peak Oil Theory perhaps?

If these fundamentals serve as any indications it looks like oil prices aren’t headed any significantly lower anytime soon.

Katrina: A Man-Made Disaster & Its Economic Consequences

``I am absolutely disgusted. After the tsunami our people, even the ones who lost everything, wanted to help the others who were suffering...Not a single tourist caught in the tsunami was mugged. Now with all this happening in the U.S. we can easily see where the civilized part of the world's population is." Sajeewa Chinthaka, 36, as he watched a cricket match in Colombo, Sri Lanka, according to a Reuters report.

I would like to take this opportunity to extend my deepest empathies to those afflicted by the recent hurricane Katrina.

However, in the face of a calamity that was NOT entirely unexpected, New Orleans which was heavily devastated is a bowl shaped city below sea level and has long feared of the catastrophic consequences from a massive hurricane. In fact, the city had ample warnings from several entities as the prominent National Geographic, academic luminary as Ivor van Heerden of Louisiana State University and even analyst as Mark Thornton of the Ludwig von Mises.org. Yet despite the warnings, the city degenerated into a disaster and at worst fell into anarchy, where looting, murder, rape and other crimes prevailed, as law and order broke down, something unheard of especially in the ‘supposed’ aegis of the world’s greatest democracy.

``Mother Nature can be cruel, but even at her worst, she is no match for government. It was the glorified public sector, the one we are always told is protecting us, that is responsible for this. And though our public servants and a sycophantic media will do their darn best to present this calamity as an act of nature, it was not and is not. Katrina came and went with far less damage than anyone expected.” wrote Llewellyn H. Rockwell, Jr. of the lewrockwell.com.

As I have argued before, despite voter’s collective expectations that the public sector ‘knows what is best’ for its constituency, governments by nature are inherently inefficient, unaccountable, irresponsive, derelict and incompetent. Why? Mr. Rockwell gives an adequate response, he says that because ``they are not real owners. There are no profits or losses at stake. They do not have to answer to risk-obsessed insurance companies who insist on premiums matching even the most remote contingencies. So long as it seems to work, they are glad to go about their business in the soporific style famous to all public sectors everywhere.”

It happened to the United States, what more to expect from unstable developing nations as ours?

The world is already faced with abruptly expanding diversified but interlocking risks in the realms of monetary/financials, economics and geopolitics yet it appears that complacency is still the order of the day. Notwithstanding, in parallel to the New Orleans debacle, governments are once again expected to deliver us from any contingencies, most notably seen with the public sectors hands underneath the Brobdingnagian currency, interest rate and credit markets worldwide.

``If you sit there and do nothing, then you have adopted the New Orleans mindset: "Let the good times roll." (Yes, that really is the state motto of Louisiana.)” warns Professor Gary North, in his Reality Sheck column. To paraphrase the illustrious Nobel Laureate Hyman Mynski, ‘Stability breeds instability’, in short, the perception of government fostered ‘stablity’ could actually be an illusion in a world of accelerating risks.

Let us not forget that what the significance of the ports of New Orleans and the Mississippi to the US economy, according to John Maudlin, ``the centrality of the port of New Orleans and the Mississippi, if the Mississippi is not opened up for shipping, and the docks and ports are not cleared for loading and unloading, it is going to be a major hit to US exports and business, especially agriculture.”

In other words, the infrastructure displacement could serve as a supply shock that could distort global trade flows over the interim. For instance, US grain prices may fall as exports are deferred (excess local supplies which were meant for exports) whereas world grain prices may rise as a result of the distortions (temporary shortages). Chemicals, steel and other items that were normally coursed through the area could also experience price dislocations arising from the temporary disequilibrium.

More importantly, as Prof North wrote, ``Because New Orleans and the gulf area are central to the American oil industry, the marginal cost of oil has risen with the shut-down. This is well-known. Whether most Americans knew this could happen a week ago is doubtful. People assume that someone is in charge, that someone will guarantee the delivery of oil. But nature cannot be hemmed in at a low price. Market pricing will help restore the system, but a loss is a loss; it must be paid for.”

Craig Stanley of resourceinvestors.com notes that, ``The Gulf of Mexico accounts for around 25% of U.S. domestic oil production and 24% of gas production.”

According to the Washington’s post September 3 report, ``Eight refineries remain shut down, though two are in the process of restarting. Nearly 89 percent of daily oil production in the Gulf of Mexico was off line. More than 72 percent of natural gas production in the Gulf of Mexico was off line.”

Tom Doggett of Reuters reports that `` The U.S. has lost production of about 42 million gallons of gasoline a day, equal to 10 percent of its normal consumption, because Hurricane Katrina shut down oil refineries and forced others to reduce runs, according to government estimates.”

The damage arising from the Katrina has so far been incompletely assessed as several oil rigs were reportedly adrift.

Damaged Shell Mars Platform at the Gulf of Mexico

Courtesy of rigzone.com

The US government has adopted several palliatives to the oil supply uncertainties such as the release of some strategic reserves held by the US government’s Strategic Petroleum Reserve (SPR), Bloomberg’s Mark Shenk, reports, ``The agency will make 60 million barrels available, with 30 million coming from the U.S. Strategic Petroleum Reserve, over the next 30 days, Energy Secretary Samuel Bodman said. The Louisiana Offshore Oil Port, the biggest U.S. oil-import terminal, and pipelines have opened. The U.S. relaxed clean-air rules this week in an effort to increase fuel supplies.”

Further, regulatory standards for gasoline blends have also been eased, additional report from Mr. Shenk of Bloomberg, ``The EPA just relaxed gasoline standards, making a greater volume available,'' said Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``Both chemically and physically it is easier to make winter-grade gasoline...The U.S. Environmental Protection Agency on Aug. 31 waived federal clean air standards for all 50 states, the District of Columbia and U.S. territories through at least Sept. 15 because of supply disruptions caused by Katrina. Refiners, importers, distributors and retailers will be able to sell gasoline that meets lower standards for emissions.”

According to Caroline Jacobs of Reuters because ``the EU nations have watched in horror as the world's richest country struggles with the aftermath of Katrina. Thousands are feared dead and troops in the flooded city of New Orleans have been told to shoot-to-kill to crack down on looting....Europe will dip into its emergency reserves of gasoline to help the United States through an energy crisis that began when Hurricane Katrina smashed into Gulf coast refiners, EU governments said on Friday.”

German Chancellor Gerhard Schroeder told a news conference in Berlin that he ``He expected a massive two million barrels per day of oil to be shipped over the next month -- more or less offsetting lost output from the Gulf coast's battered refineries.” adds Ms. Jacobs of Reuters. It would take around 10 days before EU oil reserves reach US shores taking in consideration yet the short supply of tanker space that could further delay shipment schedules.

Oil bears have been jumping in glee citing that the recent record of $70.80 per barrel of the New York’s Sweet Crude may have served as the watermark ‘peak’, reckoning that the present supply imbalances caused by Katrina failed to spark crude oil prices significantly past its previous record high of $70.5. Maybe.

However, the bears have inadequately addressed that in spite of the constricted increase in crude oil’s prices (+1.9% week-on-week at $68.16 bbl-November delivery), the refinery capacity constraints aggravated by Hurricane Katrina have resulted to staggering record-setting one week price surges in natural gas (+19.22%!!!) to $11.691 per British thermal units after reaching a record high of $12.3 Btu (!!) last August 31^st, Unleaded gasoline (+17.82%!!!) to $2.1837 per gallon after reaching $2.55 per gallon also last August 31^st and Heating oil (+11.75%!!!) to $2.0911 per gallon.

Put differently, while nation states may have excess crude oil reserves at the margins, there is no such strategic reserves for refined petroleum products, which incidentally affects consumers directly.

In sum, Hurricane Katrina simply exposed the fecklessness and ineptness of public institutions in protecting the public weal despite voter’s collective trust in them. This concern was highly aggravated by the fact that the economic significance of the affected areas, particularly of New Orleans, to the US economy was glossed over by the government’s presumption of a nonevent.

Apparently, the law of averages caught up, leaving the world’s most powerful government struggling to restore order. The damage has been done with numerous lives and properties lost and displaced. Unexpectedly, chaos reigned. More importantly, New Orlean’s contribution to the national division of labor would have to be suspended, as the city’s infrastructure had been ravaged. At present, the afflicted city would absorb capital for reconstruction rather than supply output.

The devastation has resulted to serious distortions in the economy, possibly a supply shock and heightened inflation concerns over the short term, whereby the thin margins of energy economics had been underscored at the wake of Katrina’s umbrage.

Moreover, exogenous events may further exacerbate the energy situation. This means prolonged period of high energy prices that may further squeeze consumer spending and corporate profits. Similarly, Katrina’s havoc was reflected in the financial markets, as US treasuries soared and the US dollar caved in. The prospects of a recession now loom larger today than prior to Katrina’s rendition.

Now the major risk factors stares the US economy at the face, namely, the aftermath and the unseen consequences of Katrina, soaring energy prices and the interest conundrum. The global financial markets watch in anxiety.

August 28, 2005 Greenspan Warns On Housing Imbalance, Cracks In US Housing Appear

Greenspan Warns On Housing Imbalance, Cracks In US Housing Appear

``The real problem is the US economy is just too leveraged. Starting with the housing industry, the country is too dependent on derivatives markets to create the illusion that interest rate risk can be conjured away.” John Dizard, columnist, Financial Times

Last week, I opined that the US Federal Reserve could be targeting the US real industry for its ‘froth’, hence the thrust to maintain the incremental hikes of its Federal Reserve rate at a “measured” pace. Apparently, Mr. Greenspan officially validated my analysis in his recent speech at Jackson Hole, Wyoming, stating that ``Our forecasts and hence policy are becoming increasingly driven by asset price changes."

Mr. Greenspan’s speech was practically an implicit admonition on the ballistic price dynamics of the exploding credit mortgage fueled real estate industry in the United States. In essence, he has latently acknowledged the ‘froth’ in the industry (emphasis mine), ``If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more- wrenching changes in output, incomes, and employment.

Mr. Greenspan says that this phenomenon grew out of complacency due to the perceived ‘long period of economic stability’ which has led to ‘lower risk premiums’ and which market participants view as ‘structural and permanent’.

The stark warning in his own words (emphasis mine), ``But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

This warning shadows Sir Greenspan’s “irrational exuberance” call on the stock market mania in 1996. The Nasdaq bubble imploded at the onset of the millennium in 2000.

With Greenspan’s shot across the bow, you have been warned!!

Further, I’d like to point out one recently enacted law that may even trigger the `reversion to the mean’ could be the new federal Bankruptcy Reform Act which is slated to take effect in October 17^th of this year.

According to Dana Blankenhorn, in the article Dating the Next Recession, ``Borrowers must begin paying back credit card loans based on a 10-year payback, doubling many minimum balances, and New rules force borrowers to repay those debts, even after filing bankruptcy... Faster write-downs of credits by borrowers means fewer assets for credit card banks. Forcing borrowers to pay back their loans, even after bankruptcy, means those assets can't be written-off, and those bankrupt borrowers can't be extended new credit. It's a squeeze on bank assets, from both sides of the ledger...So two things happen, even in the best of all possible worlds. Assets decline, while new assets become harder to generate.”

The law essentially cuts the 20-year credit terms to only 10 years which translates to a jump in monthly payments. The doubling of the minimum balance monthly payoff will hit consumers who are in debt to the eyeballs starting on November! Notwithstanding, borrowers are required to pay even after bankruptcy. Let me quote at length Dana Blankenhorn very important message (emphasis mine)...

``Millions of people (I have no idea how many, but the number may be in the 10s of millions) are already at their limits, squeaking by and paying the minimum on their credit card balances. To protect themselves, the banks made it the law that rates on balances that fall past-due automatically jump to over 30%. But this is, in fact, no protection at all. The banks' assets are frozen, and while they might be paid back in time, the chances of raising more assets (remember, loans are assets to the banks) declines dramatically once the hammer falls on borrowers...

``People have been encouraged (by subsidies, and the fact that banks can always sell their loans to Fannie Mae and Freddie Mac) to create a mortgage "asset bubble," with interest-only and adjustable-rate loans. People were then encouraged to furnish these palaces through credit cards or second-mortgages.

``This has happened nationwide, not just in the areas where the supply of new housing has been tight.

``So let's say you're stretched and October rolls around. The credit card bill jumps. The natural inclination (the one encouraged by banks) is to tap the home equity. But that may already be tapped. With many tapped people forced to put homes on the market (to stave off bankruptcy) a downward spiral begins. Home equity values fall, and with each turn more over-extended homeowners find themselves with negative equity. Home equity loans must be called, mortgage loans start to default, foreclosures add more assets to the pile. (Those who deal in foreclosures are already cheering.)”

How this would affect Sir Greenspan’s “structure finance” regime of about $3 trillion of Asset Backed Securities (ABS), over $6 trillion of Government Sponsored Enterprises (GSE) exposure and over $220 trillion of derivatives is a wonder if not a spectacle to behold.

Yet there are quite a number of signs that appear to indicate that the real estate sector is rolling over...

• ``Bankruptcy filings to federal courts in the April-to-June quarter totaled 467,333, according to data released Wednesday from the Administrative Office of the U.S. Courts. That marked a record number of filings made in any quarter. Of that total, most -- 458,597 -- were personal bankruptcy filings; the remaining 8,736 were businesses filing for bankruptcy, the data showed.” reports the New York Times.
  

• According to Dr Steve Sjuggerud of the Investment U, ``New home prices have spiraled downward for three straight months. They're down 14% in that time, from $236,300 in April, to $203,800 today. A drop of more than $30,000!
  

``The way The Wall Street Journal reported the statistics, it seemed like home prices have been going up. But it was the number of houses sold rising 6.5%. The median price of a home fell in July alone by - get this - 7.2%. Wow!”

Chart courtesy of Investment U

• ``In July of last year, the supply of condos and co-ops on the market nationwide was only enough to cover 3.5 months of sales. Now, NAR estimates that the supply’s enough to cover 5.3 months of sales, a 51.4% jump.” notes analyst Martin Weiss.

• In addition Mr Weiss observed that ``Inventories of homes for sale rose 2.6% to 2.751 million, a 4.6-month supply at the current sales pace. That’s the largest inventory since May 1988. And today, it was announced that the inventory of unsold NEW homes is also at a record (despite an increase in sales).”

• According to BCA Research, ``Real mortgage rates are still low compared to past Fed tightening cycles, but the Affordability Index for first-time buyers has plunged below the average of past cycles because of soaring prices. Any fading in the wealth tailwind from housing could hit consumer spending hard, especially given the escalating drag from energy prices.”

Chart courtesy of yahoo finance

• Finally stocks of homebuilders and subprime mortgage lenders have recently been buffeted, as shown in the chart above, the PHLX HOUSING SECTOR INDEX. Even lumber prices as shown below have collapsed!
  

Lumber chart courtesy of Moore’s Research Center

Robert Kiyosaki, author of the best selling “Rich Dad/Poor Dad" series of books, wrote three articles warning of the an impending real estate crash where he writes, ``In a nutshell, we really do not have a real estate bubble... the world is in a currency bubble. In other words, the governments of the world have printed too much "funny" money and cash will soon turn to trash.”

Mr. Kiyosaki, today, recommends buying gold and silver, he wrote, ``Also, I am getting rid of my U.S. dollars. As you may know, the U.S. dollar has lost nearly 40% of its value against other currencies in the last four years. That means if you have $10,000 in savings in the year 2000, it is worth about $6,000 in purchasing power. Rather than holding cash in the bank, Kim and I have been holding our excess cash in gold and silver bars. Why? Because you will know that the dollar is falling because the price of gold and especially silver will begin to rise. When silver goes higher than $8.50 an ounce and gold reaches $500 an ounce, you will know the end is near. When the crash comes, the currency of many countries will go down in purchasing power as the price of these two precious metals rise in value.”

In other words, this is no time to lollygag or be complacent. The risk factors today appear to be gaining momentum or accelerating with no less than Sir Alan Greenspan underscoring the imbalances issue coupled with a law that could have serious unintended consequences.

Remember that the Phisix has a correlation of 34% relative to the US S & P 500 benchmark according to Standard & Poor's Global Stock Markets Factbook 2004/Matthews Funds Asia which I wrote about last August 1 to 5 edition, (see Yuan Adjustments Bolsters Emerging Markets, Commodities). In other words, if the US markets take a beating, over the short-term our market could be affected. Yet, this does not mean that we have to be out of the market but rather it is exigent on us to be defensive.

Aug 28 2005 Petro Subsidies Unnerves Indonesia’s Financial Markets

Petro Subsidies Unnerves Indonesia’s Financial Markets

``Men in general are quick to believe that which they wish to be true. “ -- Julius Caesar

Local mainstream analysts are wont to facilely attribute deflating asset prices on oil concerns. While I have mentioned in the past that Oil concerns may have SOME effects in today’s price levels, the activities in the domestic financial markets appear to support my assessment that oil concerns are subordinate to the present monetary tightening environment in the US.

Because your prudent investor analyst wants to show you the impact of an actual ‘oil induced shock’, let us turn to our neighbor, Indonesia as paradigm, whom ironically is a member of the oil producing cartel, the Organization of Petroleum Exporting Countries or the OPEC.

As you can see from the chart above courtesy of BCA Research, the Indonesian currency (upper window), the rupiah cratered by a startling 4.6% in a month, while its bond yields (lower window) soared making it the worst performing bond in the Asia Pacific sphere, according to Bloomberg’s Yumi Kuramitsu and Naila Firdausi, ``The iBoxx Indonesia index has fallen 5.5 percent in 2005 as of Aug. 23.”

In addition, the insurance premium on the possibility of a credit default via the credit default swap derivative surged. According to the same Bloomberg report, ``The annual cost of insuring $10 million of Indonesia's U.S. dollar-denominated government debt for five years using credit- default swaps rose to 325,000, from $300,000 yesterday, according to Deutsche Bank AG prices. A week ago, the cost was about $245,000. Indonesia's dollar-denominated international bonds have junk ratings of B+ from Standard & Poor's and one step lower at B2 from Moody's Investors Service.”

Naturally, because of the sharp selloff in Rupiah denominated assets, the equity benchmark represented by the Jakarta Stock Exchange (JKSE), as illustrated in the above chart courtesy of yahoo finance, likewise ‘fell off the cliff’ down 12% since August 11 or in about 2 weeks!

Indonesia’s present economic and financial woes stem NOT directly from the standpoint of absolute price levels of oils but rather due to the structural makeup of GOVERNMENT SUBSIDIES ON OIL!

Because domestic demand for the fossil fuel exceeds that of the production (declining rate), the country has resorted to importing oil to meet demands. According to Bloomberg’s Christina Soon ``Indonesia's oil production fell 4.5 percent last year to 1.13 million barrels a day while oil consumption rose 1.4 percent to 1.15 million barrels a day, according to data from BP Plc, the world's second-largest publicly traded oil company...The country's fuel consumption may rise 7 percent in the second half from the first six months, Mohammad Harun, spokesman for the nation's biggest oil producer, PT Pertamina, said in an e- mailed statement on Aug. 12.”

``The country may import a net 61,000 barrels a day this year, compared with net exports of 27,000 barrels in 2004, based on figures in a document prepared for the Energy and Mineral Resources Ministry and obtained by Bloomberg News.” notes Bloomberg’s Yumi Kuramitsu and Naila Firdausi.

Since government restricts a `pass through’ of the price of fuel to its consumers and instead absorbs the price differential, this has accounted for a substantial chunk of strain in the country’s fiscal budget, ``President Susilo Bambang Yudhoyono on Aug. 16 forecast spending on fuel subsidies may reach 140 trillion rupiah ($13.4 billion) this year, threatening his plan to narrow the budget deficit and boost spending on health and education. Subsidies will widen the budget deficit to 1 percent of gross domestic product, the president said on Aug. 16, up from 0.8 percent.” reports Bloomberg’s Christina Soon.

Caught between the proverbial ``Devil and the deep blue sea” the government’s desire to balance its budget runs in conflict with the interests of the populace. Aburizal Bakrie, Indonesia's top economics minister recently announced that fuel prices will increase this January. The last time Indonesia raised fuel prices by as much as 34% (!) was in March.

The heightened risk of political unrest and higher inflation landscape has caused the present ruckus in the country’s financial markets. According to widely followed BCA Research, ``Markets worry that the removal of subsidies will push inflation higher and increase political risks. In 2001, when the government last attempted to remove fuel subsidies this incited social unrest and led to the reinstatement of the subsidies. Market conditions are fluid and further weakness is likely. However, the inflationary shock from higher fuel prices will be transitory and long-term bonds yielding nearly 14% offer good value.” In short, BCA believes that the ‘transitory’ actions are simply knee-jerk reactions that presents for a buying opportunity.

Two important reflection points from the ‘Indonesian experience’. First, subsidies, for short term pacification of the general public, wreaks havoc on government finances which eventually percolates to the financial markets, as I have argued against the proponents of crowd appeasing nationalization or government subsidies in my May 2 to 6^th edition `The Cure Is Worse Than The Disease’.

Second, because oil price shocks have ‘stagflationary’ effects on oil importing countries, which means it reduces the rate of growth, and leads to an increase in the general price level or potential inflation, higher interest rates or tightening money environment are its natural outgrowth, something that we have not yet seen in the local market, so far. As shown by the chart below from the National Statistical Coordination Board NSCB.

91-day Philippine Treasury Bills

So before you believe the mainstream analysts’ folderol that the current ennui in the domestic market is oil related, check out if the financial markets (across asset classes) are validating this view.

Finally, many economists correlate high oil prices to a consumption tax. Maybe it is, however, in my view they are even worse than taxes. Not only are they a drag to consumer spending, business hiring, capital expenditures, corporate profits and foreign currency reserves, the increased oil bills go overseas particularly to oil exporting countries. In short, it is a wealth transfer from oil consuming countries to oil producing countries. At least taxes get spent domestically whether one would argue that it be spent judiciously or otherwise.

Bill Ridley: Saudi Arabia - The Next Mid East Flashpoint

An important read from Bill Ridley of the jameswinston.com...the political equation in Saudi Arabia could even tilt oil prices to the roof!

Saudi Arabia - The Next Mid East Flashpoint

The last thing the United States needs right now is another conflict in the Mid East to deal with, but unfortunately America’s key ally in that troubled region is showing signs that they are on the brink of a civil war.

At stake here are 26% of the world’s oil reserves and 204 trillion cubic feet of natural gas. If extremist revolutionaries get their way, they will attempt to bring the U.S. and the rest of the western world to their knees by jacking up oil prices to punitive levels.

For the worst possible reasons, the likelihood of oil and gold dropping much further in price seems highly unlikely. In fact, it is very possible we could see sharper price spikes.

Playing into the latest price surge over $60 has been the recent death of Saudi Arabia 's King Faud, which has traders fretting the country's oil output could be disrupted as concerns of a civil war heighten. Just hours before the newly crowned King Abdullah arrived in the holy city of Medina , security forces killed the leader of al Qaeda in Saudi Arabia in a gun battle.

Earlier this month, terrorism concerns caused the U.S. to shut an embassy and two consulates. In an already skittish market, any unrest in Saudi Arabia is especially unnerving particularly given the fact that the major source for terrorism funding and manpower comes mostly from Saudi Arabia who are also world’s leading supplier of oil.

Saudi Arabia has the potential to become the world’s biggest political and economic disaster and is one of the major reasons why we are now paying more to fill up our cars.

Some energy economists are saying that the cost of a barrel of oil now has a $10 to $15 premium due to the uncertainty in the Middle East . Analysts are also worried that the now ruling King Abdulla will lose control of Saudi security and most importantly, control of the oil infrastructure.

Increased terrorist activity is hard for oil analysts to ignore. Last year a truck bomb blasted a main Saudi police station which was followed by the May 29^th attack at a foreign workers compound in Khobar. An organization calling itself the al-Qaeda of the Arabian Peninsula later released statements denouncing members of the Saudi Royal Family and accusing them of plundering the nation’s oil wealth.

You would think that a nation that controls 25% of the world’s oil reserves would be a shining star for education and development for their people instead of the home base for terrorist financing and training.

So what happen?

Close examination reveals that the Saudi Royal Family of some 6,000 princes (women are excluded), along with favored business buddies like the bin Ladens, absorb virtually all the billions of oil revenues. This is another classic example of third world politics where the power elite keep themselves in luxury while their subjects are kept under strict control.

The Saud Royalty enforce Islamic laws and harsh punishments against the 22 million subjects under their rule. By our standards, their rule of the law is primitive. For the worst lawbreakers, public beheadings are still the norm.

To help keep the masses somewhat happy however, billions of dollars have been doled out to the under classes. These funds have gone to some positive things such as schools and mosques however there is a clear money trail showing that al Qaeda terrorists have also been on the receiving end.

Clearly, this terrorist financial support shows there is dissention within the ranks of the Saudi power elite. The clearest example being Osama bin Laden himself.

Life in the Desert

The Saudi ruling classes have riches beyond our comprehension. They have gone to the best schools in Europe and the United States, received the best medical care from American and European doctors. I remember one story from a nurse who said that one of the sheiks she had given care to in his palace had gold bars on the floor of his bedroom to keep his feet cool!

Unfortunately this extravagant wealth has not trickled down to the average family who live in the streets outside the palace gates in Riyadh. Millions of fundamentalists live in a world of fear, ignorance, and poverty which has breed contempt. Such a state of mind is open to believing the negative religious doctrine that focusing on death and destruction of those people and places which they believe are responsible for their unhappiness.

The mind control tactics of the religious leaders will keep the masses satisfied until they reach paradise either by their natural death or by sacrificing themselves for their cause. When you live a life of hell, a suicide bombing, is a glorious answer and a face saving escape.

Of course in reality what is happening is a transfer of power from one group of self centered control fanatics to another. One group uses their education, breeding and military control to maintain power and the other use religious doctrine to persuade the masses to do their biding.

Caught in the middle of this mess is the economic stability of the western world.

In the 1970s another U.S. ally, the Shah of Iran, was driven out of power by religious fanatics led by the Ayatollah Khomeini. Washington insiders are now worried The House of Saud may also fall victim to an internal uprising.

The state of mind of the average Saudi citizen is worrisome. Their views of the world are summed up within the pages of the Arabian bestseller, Bin Laden, Al-Jazeera, and I.

The book reviews an interview with Osama bin Laden well before September 11^th. In the book he proclaims that "Every American man is an enemy, whether he is among the fighters who fight us directly or among those who just pay U.S. taxes."

When it comes to the oil resources bin Laden says, “A barrel of oil should cost $144. By these calculations, Americans have stolen $36 trillion from Muslims. They owe each member of the faith $30,000."

The only reason that OPEC hasn’t put the screws to the western world has been the overpowering influence of the Royal Saud family.

Saudi Arabia and the US have maintained a special relationship since 1945 when President Roosevelt and King Ibn Saud cut a deal whereby the U.S. would help keep them in power in exchange for reliable oil supplies.

This arrangement had worked well for many years but now it appears to be unraveling. To guarantee their wealth, the House of Saud has had to suppress the religious fanatics while keeping up appearances that they themselves are of the faith of the righteous.

To facilitate their security, the Royal family has had to rely on American help, without being too obvious about it.

Showdown in the Desert

Last year the House of Saud decided they should crack down on these misappropriated “charity” organizations that have supported terrorism. One such foundation called the Al Haramain Islanic Foundation has dished out about $50 million a year to groups who have links to terror organizations.

The situation is further complicated by power struggles within the top ranks of the Royalty. There are those within the House of Saud who oppose King Abdullah. And it would seem, so do many Saudi citizens.

The British newspaper, The Observer commented that "Anti-government demonstrations have swept the desert kingdom in the past months in protest at the pro-American stance of the de facto ruler, King Abdullah.”

Saudi’s minister of interior, Prince Nayef, who is also in charge of preventing terrorism, has strong support though he seems neutral toward the extremist element. Perhaps this is why four terrorists where able to disguise themselves as security forces and enter the well fortified foreign workers compound at Khobar which killed 22 people in 2004. More unbelievable is that the terrorists actually escaped while being surrounded by hundreds of security forces!

Aside from al Qaeda, much of the Saudi population are not big fans of the United States because of the close ties with Israel and U.S. military’s presence there since the end of the Gulf War.

If Prince Nayef decides to challenge Prince Abdullah, he may have the help of terrorist supporters. Within Saudi Arabia there is a generation of hard core religious fanatics who have been brainwashed into believing they are on a mission to rid the world of non-believers. This is what one Arab writer has described as the “culture of death.” These are the people who don’t think twice about blowing up innocent people along with themselves.

Meanwhile, the targets of choice for terrorists in Saudi Arabia are the western workers who live and work there. Alex Standish, the editor of Jane’s Intelligence Digest, said the situation in Saudi Arabia has strong parallels to the fall of the Shah of Iran who was toppled in 1979. He said there is a lot of evidence to suggest al Qaeda is gathering strength.

This isn’t a pleasant scenario however it’s very real. More troubling is that if Saudi Arabia ’s oilfields ever go offline for too long, the world will go into a major economic tailspin. The United States and the rest of the industrial world are counting on Saudi to increase their oil production, not dial it back. It should be more then obvious the world will not sit idly by and wait for the Saudi’s to sort out their political problems.

Vinnell Corporation “Mercenaries are Us”

You may recall hearing about Vinnell Corporation last year when the bombing of their premises in Saudi Arabia made headlines around the world. This was the second such attack on Vinnell’s property and personnel in Saudi Arabia , the first attack having been done in 1995.

Vinnell is a subsidiary of Northrop Grumman and in 2004 they were in the last year of a $831 million five year contract to train Saudi’s 80,000 National Guard under the supervision of the U.S. Army.

Jane's Defense Weekly has described these guardsmen as "a kind of Praetorian Guard for the House of Saud, the royal family's defense of last resort against internal opposition." That is why Vinnell and its employees were targeted in 1995 and again in May 2004.

By extension, The Saudi Arabian National Guard, are seen as a de-facto American military force. Without the National Guard, the royal family would be forced to leave the country and the revolutionaries could step in and use their control of oil to bring down the western world.

This cannot happen and it won’t. What remains unclear is to what degree will the U.S. military need to act in order to stabilize Saudi oil supplies over the upcoming months. As it looks right now, Saudi Arabia could be the next the next battle ground for U.S. forces.

In 2004, Saudi authorities with guidance from the CIA, started uncovering a network of Islamic extremists, arms, and sleeper cells all over the kingdom. Though a strong anti-Saud movement has been in existence for many years, officials are stating they have only just discovered these cells since last year following the May 12 suicide bombing in Riyadh.

Since the bombings back in May, Saudi officials have arrested more than 200 suspects.

Though authorities have just scratched the surface of uncovering these militants, it is clear from the large numbers of terrorist cells found and the sophistication of their arsenal, that this group is very powerful and well connected to money and the black market arms trade.

Militant expert and journalist with the Asharq alAwsat newspaper, Mishari al-Thaidi, says “it’s clear that they have sympathizers all over the Muslim world, including many young Saudis vulnerable to the call of Jihad (holy war), more recently because of the US war in Afghanistan and Iraq. The portrayal of those as crusader wars against Muslims makes it easier for al-Qaeda to gather recruits.”

Conclusion

Back in 1945 President Roosevelt and King Ibn Saud cut a deal whereby the U.S. would help the Royal House of Saud stay in power in exchange for reliable oil supplies. Though the U.S. has had many worry free years of oil supplies from Saudi Arabia , things are unwinding.

Though we don’t get a lot of news about Saudi Arabia ’s growing revolution, it just may be the main stream media’s top news story in the not too distant future.

If extremist revolutionaries get their way, they will attempt to bring the U.S. and the rest of the western world to their knees by jacking up oil prices to punitive levels.

Having positions in gold has always been the best insurance policy against the potential for a major financial and political upheaval. It’s been decades since global economic security has been in such tenuous position. The logic of owning gold in some form makes more sense today then ever before in our generation.