In this issue:

Behind the Hype Over Scarcity of Oil and Gas: U.S. Energy Pirates

Post's Pearlstein: Gov't, Not Market, Must Build Infrastructure

Even the Media Balks at Fraud of 'Recovery'

Wall Street Journal Opposes Asian Currency Revaluation

Freddie Mac Delays Earnings Restatement Until November


From Volume 2, Issue Number 39 of Electronic Intelligence Weekly, Published Sept. 30, 2003

U.S. Economic/Financial News

Behind the Hype Over Scarcity of Oil and Gas: U.S. Energy Pirates

The recent media hype over scarcity of oil and natural gas signals a new round of hyperinflation and financial manipulation by those positioned in commodities, thanks to deregulation. Some updates:

* The OPEC output cut is being used to justify higher prices this winter. "OPEC cut likely to raise heating bills," blares USA Today in a front-page business article Sept. 25. The Organization of Petroleum Exporting Countries voted to cut oil production by 3.5% starting November 1. "Prices are going up," said ABN Amro's head of global commodity marketing. OPEC's decision, said the Atlanta Journal-Constitution, is "certain to raise energy costs."

* U.S. natural gas: a new report demands more supplies, more deregulation. A National Petroleum Council study was released Sept. 25, which warns that U.S. consumers will pay $1 trillion in higher gas prices over the next 20 years unless new sources are rapidly developed; it urges construction of pipeline from Alaska, increased drilling in currently protected Federal lands (such as the Rocky Mountains) and coastal areas in Lower 48, etc. Note: Warren Buffett, himself, now a top controller of California "Governator" candidate Arnie Schwarzenegger, is the leading natural-gas-pipeline baron, in the post-Enron era. Mid-American Energy Holdings (majority-owned by Berkshire Hathaway, which is majority owned by Buffett), now owns the major line ("Kern River" pipeline) from the Rockies-to-Calif., acquired from Enron, via Dynegy, in 2002; and also owns the huge Northern Natural Gas Line, acquired from Williams in 2001.

* Attempts by energy pirates to get in on Russian oil and gas system; U.S. Commerce Secretary Don Evans was in Moscow last week, urging Russia's state pipeline operator, A.O. Transneft, to offer shares to American companies, of the projected new Arctic pipeline. At the top of Evans' agenda: getting in on the prospective oil pipeline to Murmansk—the deepwater port from which tankers could proceed to eastern U.S., etc. Another project, is for liquified natural gas. The idea involves developing the natural gas fields in the Barents Sea, building a liquified-natural-gas plant, a fleet of tankers, an offshore pipeline, and an underwater pipeline to shore.

Post's Pearlstein: Gov't, Not Market, Must Build Infrastructure

The government, not the free market, must take the responsibility to modernize infrastructure, writes Steven Pearlstein, in the Washington Post Sept. 25., thus echoing Lyndon LaRouche's campaign for an FDR approach to the problem. Pearlstein notes that the U.S. is still dependent on a 19th-Century innovation, i.e., telegraph poles, which a strong gust of wind could bring down, as hundreds of thousands experienced when Hurricane Isabel ripped through their neighborhoods. The nation has neglected and underinvested in other vital public goods—electric power and natural gas, roads and transit systems, water-supply systems, he writes, due to "misguided" deregulation, and "mindless" tax- and rate-cutting.

Contrary to popular opinion, he points out, the "free" market can not provide these vital services, because private firms would not recoup their investment, as the benefit of investments spreads to the economy as a whole. This is the reason, in fact, why "these activities were originally set up as government activities, or regulated private utilities—and why they still need to be today."

For example, utility companies dismissed the idea of buying more power lines, claiming it would be too expensive. But, as regulated utilities, Pearlstein says, "that's not their decision—it's the American people's call."

Even the Media Balks at Fraud of 'Recovery'

The Bush Administration's "recovery" hoax has become too much even for the news media in recent days:

* "Is Fed's Recovery Talk All Spin?" asks Peter Morton, rhetorically, in Canada's National Post. Federal Reserve governors and presidents are on a massive campaign, "putting out the word that the U.S. is on the road to wellness"; at the same time, pushing the "blame China" line over job losses in manufacturing. Yet, a UCLA Anderson School study found that neither consumers nor businesses have the buying or investment power typically seen in economic recoveries. The Bush Administration is trying to talk down the U.S. dollar, claiming this would stimulate jobs and exports. "The best this administration can do, is try to talk up the economy on the hopes that sooner, or later, everyone believes it," Morton concludes.

* "Dollar Crash Could Wreck U.S. Economy," warns Ken Moritsugu in the Detroit Free Press, a paper in the decimated auto/manufacturing city. As the record U.S. current-account deficit continues to grow, foreign investors could dump their dollar holdings and U.S. investments (such as stocks and bonds), which have propped up the economy, triggering a collapse in the value of the dollar. This would pummel the stock market, drive up interest rates, and push up the prices of imports, he cautions, as well as slam countries dependent on exporting to the U.S. Then, the "herd mentality" of the financial markets could turn the gradual decline, into an "all-out run" on the dollar, a "self-reinforcing downward spiral." "America has in essence been living beyond its means, importing more than it exports, and relying on money from abroad to get by," Moritsugu warns.

* "Bush Bid To Weaken Currency Could Backfire," cautions the Washington Post's Jonathan Weisman, by creating a sudden spike in interest rates and a stock-market collapse. Top Administration officials have urged China and Japan to allow their currencies to rise against the dollar, a move that subjects the world economy to significant risks, some international economists say, all for the sake of appearing to take manufacturers' concerns seriously. As the dollar falls, currency traders would dump dollars on the market, pushing its value to dangerously low levels. Foreign investors, as a result, may reduce their purchases of U.S. Treasury securities. The U.S., in turn, would be forced to boost interest rates, increasing the cost of financing the soaring budget deficit, and raising rates on mortgage and car loans.

Wall Street Journal Opposes Asian Currency Revaluation

Even the Benthamite Wall Street Journal is warning against an Asian currency revaluation to drive down the value of the U.S. dollar, a political move peddled by the Bush Administration and rammed through last week's Group of 7 meeting in Dubai. Instead, the Journal Sept. 23 urges a hyperinflationary printing of more dollars, relative to the yen, to weaken the dollar—a central bank measure, in opposition to government intervention.

China's pegging of its currency to the U.S. dollar, the editorial insists, is not the problem, despite Treasury Secretary John "Snow's currency job."

Such currency manipulation, the Wall Street mouthpiece warns, could create instability that triggers financial crises, as happened during the late 1990s in Asia, and in the 1970s in Britain. If the U.S. begins to "manipulate currencies for narrow political purposes," i.e., Bush's re-election, then "all bets are off for the rest of the world," the editorial cautions, as "beggar-thy-neighbor" devaluations return.

Freddie Mac Delays Earnings Restatement Until November

Mortgage-finance giant Freddie Mac, under fire over bogus accounting methods related to massive derivatives holdings, said that the restatement of its earnings, which could exceed $4.5 billion, for the 2000-2002 period, originally scheduled for Sept. 30, will be delayed until November. In addition, the restatement could now be more than the $1.5-4.5 billion range the company had previously announced.

Freddie Mac blamed the delay not on new accounting errors, but on computer-system changes needed to account for asset transfers and securitizations (the sale of pools of home loans to create mortgage-backed securities).

Meanwhile, the Federal Home Loan Bank of New York, faces troubles because of $183 million in losses on investments in bonds backed by mobile-home loans, due to rising defaults. FHLB-NY, one of 12 banks nationwide which provide money to home lenders in local communities, has suspended payment of its October dividend to customer banks.

Freddie Mac and Fannie Mae, which buy home loans from banks and other lenders, then bundle them into securities for sale on Wall Street, owned, or had financed, 45% of the $7.2 trillion U.S. mortgage debt outstanding as of the end of March.

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