The Biggest Transfer of Wealth in History

[MORTARDUDE]

http://jutiagroup.com/2008/07/12/the...ory-continued/

July 12th, 2008

This week began with alarm bells. First Bridgewater Associates broke the glass and pulled the handle; it said the conflagration in the credit markets might lead to losses four times higher than previous estimates - at $1.6 trillion. A lot of money - even for someone who lives in London.

Bridgewater helpfully pointed out that this was just the beginning; the world would lose an additional $12 trillion in foregone credit. When the going is good, each ounce of a bank’s share capital grows into as much as a pound of credit available to borrowers. But when the cycle turns, the shrinkage takes your breath away. Remove a dollar from a bank’s balance sheet and you wipe out a ten-spot of credit. Bad news for people in Britain and America who are accustomed to living off of credit. Bad news for their economies, too. Without access to the fire hose of easy credit, the consumer economy goes up in smoke.

To give you an idea of the scale of a $12 trillion problem, the entire U.K. economy generates only $2.8 trillion of output annually. The U.S. economy - at $13.8 trillion - is only slightly bigger than the anticipated damage.

When the alarums quieted and the flames died down, hopeful analysts sifted the ruins and wondered where the City and Wall Street might find the resources to restock their shelves. Suddenly, all heads rocked towards the East. Visions of myrrh and incense danced before their greedy eyes. Sultans as rich as Croesus…oil sheiks with sand dunes for brains…maharajas of motor industries and mandarins of manufacturing. Enriched by the black gold flowing from deep holes in Arabia…or from commerce on the trade routes between Hong Kong and Long Beach, these princes of modern finance have trillions. Surely they will come to the aid of those who had made them rich?

The gist of the following reflection is this: no, they won’t. Just because people are rich doesn’t mean they are stupid.

Outside the Bank of England and the U.S. Fed lies some $5.3 trillion in central bank reserves. In foreign government pension reserves and other accounts is another $6.1 trillion. Add $3 trillion more now in the hands of Sovereign Wealth Funds. The IMF says these SWFs will grow to $12 trillion within four years. Morgan Stanley estimates a $17.5 trillion pot by 2017. Altogether, this is enough moolah to buy control of every public company in Britain and America combined.

Few people bother to ask where they got all that money. Never mind, we will answer the question anyway: it is the fruit of a monumental hornswoggle.

“It is the biggest transfer of wealth in history,” says T. Boone Pickens, speaking of the oil trade. Americans alone import 3.6 billion barrels of oil a year. In 2003, the tab for all that goo was only about $70 billion. At today’s oil price, it is pushing half a trillion.



A quarter of oil’s price increase since 2003 was because the dollar skidded against foreign currencies. What about the other 75%? That too, is probably largely a feature of a slippery dollar. For the last 100 years, the oil price has greased along - more or less - with U.S. money supply growth. As M3 increased, so did the price of oil. Currently, the money supply - as measured by M3 - is increasing at an annual rate of about 18%. Oil is going up - on a 10-year moving average basis - about 23% per year. Looked at another way, from 1974 to the present, the price of oil has gone up a bit more than 14 times. The U.S. money supply, meanwhile, has gone up a bit more than 11 times.

What does this mean? Oil is probably overpriced. But don’t worry, Mr. Market will sort that out. Just don’t get distracted. This is one of the funniest and most perverse scenes in modern finance; it would be a shame to miss it. In effect, the world’s most sophisticated capitalists are also the dumbest when it comes to money. America and Britain spent too much money. Now, they owe more money to more people than any nations ever did before. Once, they owned the world; now the world owns them. And now, the U.S. central bank inflates in order to try to rescue its errant banks, reckless spenders and condo speculators. But in the global economy, the easy money won’t stay put. Instead, it seeps over to oil sheiks in the Near East to pay for petrol…or over to the sweatshop operators in Far East to pay for electronic gadgets and designer T-shirts. It doesn’t stimulate the U.S. economy, in other words; it stimulates the foreigners’ economies and raises prices for everyone, including themselves. Unfortunately, while the foreigners earn more money and can keep up with rising prices - incomes in India are up 148% since 2001 - the Anglo-saxons’ wages are stagnant. Americans haven’t had a real wage increase in 40 years.

And now the lynchpins of leveraged finance are praying that the cash they spent on imports will come back to them. And it will. But it comes back like a young man who got rich in the colonies…with better clothes and a sniffy air. It left a servant; it comes back a master, buying up valuable assets and expecting the indigenes of Wall Street to shine its shoes. Foreign purchases of U.S. assets rose 90% last year. Foreigners are bidding for America’s leading brewery, Britain’s stock exchange, hedge funds, infrastructure projects and technology companies. A Chinese company bought MG. An SWF from the Gulf bought the emblematic Chrysler in New York. A Russian who got rich in fertilizer bought Donald Trump’s Palm Beach mansion for $100 million. And the balance sheet of the U.S. Fed shows $2.3 trillion of US treasury debt held in custody for foreign central banks.

The harder the Fed fights the correction…the more money and credit it puts out. This monetary inflation causes prices for oil and imports to rise…and more money goes into foreign reserves and Sovereign Wealth Funds in the East, to be used to buy more assets in the West. Thanks to America’s mad monetary policy, these private assets are being taken into public ownership. Some of America’s most important properties are being nationalized…but by other nations.

Bill Bonner
The Daily Reckoning

[exlrrp]

Everyone knows that the US is addicted to cheap foreign oil---but what happens when the price of oil sky rockets?
A crack addict doesn't have a crack price problem, he has an addiction problem. And thats why the "Drill More" forces get it all wrong. A crack addict's biggest problem isn't the cost of crack---its his adiction to crack---just like the US's problem isn't t the price of oil, its that we're addicted to cheap foreign oil.

The way to energy independence isn't putting more of what we're addicted to out on the market, its getting off the addiction. Thats where Al Gore gets it right----attack the main problem, not the sideshow. Don't keep feeding the adddict dope, get him off the addiction. Gore at least has the vison to suggest alternatives---with Bush, its drill more, drill more and drill more---but what would you expect from someone who derives the major part of his income from oil revenues?

Drilling more just puts more money into the hands of the oil producers and companies which have no loyalty to the US at all. Thats why Hugo Chavez has become such a figure in the world---we're paying his expenses, just like we're going far to keep Iran afloat. Wanna get these creeps out of our lives? End the dependence on oil!

"...And the balance sheet of the U.S. Fed shows $2.3 trillion of US treasury debt held in custody for foreign central banks....."

Another thing we have to do right away is to get offf the republicon "Borrow and Squander" monetary scheme. Bush and the republicons are as addicted to borrowed money as the US is to foreign oil. We borrowed 100% of the money to pay for the Iraq War, Katrina and every other mess that BUsh mishandled. And our children and grandchildren will be paying off Bush's debts for decades.

The doubling of the national debt in the last 7.5 years is unprecedented and this goes far to explain why your dollar only buys 75% of what it did when Bush took over. Bush just doesn't seem to understand that you can't borrow your way to prosperity---you have to pay for it. (what DO they teach in Harvard Business school, anyway?)

"...Thanks to America’s mad monetary policy, these private assets are being taken into public ownership. Some of America’s most important properties are being nationalized…but by other nations...."

It has always been Bush and the Repuglican's plan to sell America to the highest bidder and theyre doing a great job of it. America is more owned by foreigners than ever before.
Heckuvajob, Bushie

Stay good
james

[Advisor]

What's the world coming to? Me, agreeing with James. LOL. Got to agree with you...again. But, the culture of credit is not new. It's been growing for many years, under both dem & rep congresses & presidents. Why are we waiting for government to do something? What? What is wrong with us... we spend like drunken sailors in a whorehouse. We gotta have all the latest, greatest & biggest crap..NOW...not later. We the people need to get our own finances in order & not buy into the credit culture..and, we've got to grab the pols by the short hairs & demand they put the government's financial house in order...and not on the backs of the people. We babble on about 'democracy' but do nothing but vote for whoever promises us more stuff. The 'American' century is over but no one has turned off the lights..yet.
And, we've got to take care of business here, at home, and keep our noses out of other countries business. John Q Adams said that we are friends of liberty everywhere, but guarantors only of our own. Good and true words.

[MORTARDUDE]

Gore's Oil Money

http://www.thenation.com/doc/20000522/silverstein

[Tab]

A few years back both India and China only imported a fraction of the oil that they are now, there is only so much oil to go around so the price has rocketed. What any one thinks about it the price of cheap oil is a thing of past. With out being rude to my American cousins if drive a gas guzzling car it is going to cost you more and more to fill it up. I know the distances that you drive in the states can be enormous but things like a Humvee that drinks petrol at around a mile per gallon then you can't be surprised that it now costs a fortune to fill it up. Many cars in Europe have as many as six forward gears to give you the maximum mileage per gallon of petrol. Here we are paying around $11.00 per gallon, mind you most of this is government tax but you still feel the pain in your wallet when you fill up.

[exlrrp]

Originally Posted by MORTARDUDE

Gore's Oil Money

http://www.thenation.com/doc/20000522/silverstein

From May, 3 2000????????????


Dang, Larry, youre a little out of date. This is an ancient hack on Gore that never specifically says ANYTHING about what Gore himself owns. Its also long out of date.

And how has this played out----did Occidental score big in Colombian oil?? Did Gore's family make millions off of Colombian oil?
Turns out that Colombia is too much of a battleground to produce much oil so this went absoluterly no where.

Why, HERE'S an interesting quote: "...Bush returned to the oil industry, becoming a senior partner, or chief executive officer, of several ventures, such as Arbusto Energy,[36] Spectrum 7, and, later, Harken Energy.[37] These ventures suffered under his management from the general decline of oil prices in the 1980s that had affected the industry and the regional economy. Additionally, questions of possible insider trading involving Harken have arisen....." http://en.wikipedia.org/wiki/George_W._Bush

Its sure easy to see why Bush gave all those tax breaks to the oil industry---he represents it!! And his family as made most of their fortune from it(the other part comes from Defense contracting) And George Bush gave more tax breaks to the oil indusry than any president in history. Bush hasn't done ANYTHING that didn't enrich himself and his family from taxbreaks for oil companies to tax breaks for multi millionaires. The whole basic premise of the repuglican party is that rich people in America don't have enough money.

Don't ever compare the Gore's family ties to the oil industry to the Bush Family's ties to the oil industry, youre going to lose bigtime! When you have a president from a family that derives its major income from Oil and defense contracting, it should be no big surprise to find ourselves in an endless war with oil prices skyrocketing---Mission Accomplished, georgieboy!! You ran your other ventures into the ground so its no surprise youre bankrupting America too!!

One more thing----how much did the oil industry donate to George W Bush's campaigns? Youre a clever boy, Larry, I'm sure you can come up with a realtime answer