Monday, February 28, 2011

Who Really Benefits When Oil Prices Go Up

Dr. E. Eugene Webb

Here we are once again, political upheaval in the mid east and immediately gas prices in the US take off. The question remains why? The answer is unmitigated greed. There is no shortage of oil. It is very unlikely there will be a shortage of oil. Believe me, if it looks like oil supplies are seriously threatened you will see all of the UN mumbo jumbo thrown out the window and the major oil consuming countries will move in politically and yes militarily to keep the black juice flowing. Why then is uncertainty the reason for rapid and unjustified increases in consumer prices. Answer same as above GREED. Everyone in the supply chain sees a chance to make a lot of money really fast based on fear not the reality of the cost of oil.

As long as oil trades on the open market as a commodity, speculators will use these events to artificially inflate oil prices for their own profit. Oil does not cost one penny more to produce today that it did three weeks ago. The pipe line is full and there is plenty of refined product. You might think all of this increase flows back to the oil sheik in his tent, but not so. Most of it ends up as profit for the Big Oil and the speculators who drive the futures market. Watch Big Oil’s profit reports in the next few quarters and futures divisions of the major brokerage houses. They will continue to sky rocket. Big oil loves all of this chaos. They are the ones who profit the most.

Given the strategic importance of oil to all economies, it is time put the futures traders who suck billions out of the economy, while adding no real value, out of the oil business. Oil producing and oil consuming nations need to take oil out of the futures trading market, establish a global crude oil management system and fix crude oil prices to a unique currency made up of a combination of the Euro, Dollar and Yen. Nothing would do more to stabilize the global economy and give emerging nations economic and political stability.

Doc

Wednesday, February 23, 2011

Three Reasons While High Speed Rail Will Not Work

Dr. E. Eugene Webb
Local politicos are screaming their heads off trying to figure out a way to get the Fed’s high speed rail money into Florida. The thinking is all short sighted and fails to look at the realities of business and the economy.

Reason One: All of the facts are flawed and biased; cost to build, cost to operate and the number of jobs it will create.

Reason two. Private enterprise is unlikely to go on the hook for the whole deal. If they do here is the 800 pound gorilla. BANKRUPCY. It will be set up as a subsidiary or private wholly owned company. If the rail project starts to tank private enterprise, no matter who they are, what the agreed too, or what they signed, will run away from this like rats from a sinking ship. They have too. The have their equity owners to worry about and any executive who doesn’t will be out the door in a heart beat. Just how long do the leaders of Tampa, Lakeland and Orland think these guys will hang on. Answer not very long. They will sign anything, say anything and do almost anything to get their hands on the Fed’s money. But when the money is gone, ridership doesn’t materialize and it goes south all we will see is red tail lights and the taxpayers will be stuck with the bill. If you think for one minute three cities can litigate their way through that mess, then high seed rails for you.

Reason three: Local governments have a horrible history negotiating long term contracts with private industry. Even when they have lots of time to do the deals, these agreements often fail. The local high speed rail initiative being driven by Mayor Iorio is moving at lightning speed and there is little chance they can cover all the bases to protect the citizens of these communities. So here is the question. If you live in Tampa, Lakeland or Orlando are you willing to bet your future tax rates on high speed rail? If this project fails the only place the bailout money can come from is the governments who signed on for the deal.
Think about it.

Doc

Monday, February 21, 2011

Blessing or Boondoggle - Scott Sacks High Speed Rail

Dr. E. Eugene Webb

The bleating hearts of wounded politicians have begun to cry like wolves howling at the moon. At a time when every one of their governments, Tampa, Orland and Miami are in serious economic trouble they want to focus the ire on Governor’ Scotts decision to pass on High Speed Rail. The hype concocted to sell this massive project is staggering. The Mayor of Tampa is accusing Scott of being just short of a traitor and politicians from Washington to Tampa are expressing disbelief and shock. The problem is none of these people every stopped to take a serious look at the big picture.

The ridership figures are flawed. The cost is likely way understated, the promise of the private sector picking up cost overruns and operating shortfalls cannot be guaranteed. The contracts will be full of outs and in the long run the private sector can just walk and the Florida tax payer is still stuck with the bill.
“We were hoping the process could go forward with the private sector,” said Barney Bishop III, president and chief executive officer of Associated Industries. “The problem is that ridership numbers are always optimistic and construction numbers are minimized so it ends up costing more. The governor is not looking at any more liabilities for Florida taxpayers, and we understand where he’s coming from. Economically and fiscally, that has to be a superior reason to anything else.”
It takes a lot of courage to standup and make a decision that on the surface flies in the face of logic. But the fact is there is not enough critical thinking in Government. No serious unbiased business case planning. Once a pile of money is in site all reason flies out the window. Get the money - get the money. There is not and never was a solid business case for high speed rail. Not here not in Wisconsin or Ohio. A few large companies, some consultants and contractors were going to get very rich and the rest of us would get the experience of watching an empty bullet terrain fly by us at 225mph as we drove to Orlando on a still crowed I-4. Would you really ride it? Core infrastructure that supports commerce and industry is the key to more Florida prosperity. The Mouse will due just fine bullet train or not.
Governor Scott is going to take a lot of heat over this one but he is right. We need to focus on the core infrastructure and not shiny things that cost a lot, go fast, cost taxpayers and arm and a leg and make politicians feel better. Scott’s political advisories are going to make hay over this one, casting him as the Villon. But in 7 to 10 years when the stories about states going broke supporting their high speed rail system with no riders begin to show up, Floridians may just be experiencing a good economy and reasonable taxes. Ya gotta hand it to the bald guy. He has some big ones.
Doc

Is Big Oil Sabotaging the US Economic Recovery?

By; Dr. Eugene Webb

Just as it looks like the US is crawling out of the worst recession in years, oil prices, and as expected, gasoline prices have begun to rise dramatically. The question is why and there are a lot of answers from a lot of people. Thomas Friedman’s “law of Petropolitics” suggests that there is a negative correlation between the “price of oil and pace of freedom,” which “always move in opposite directions in oil-rich petrolist states.” In other words there is direct link in the evolution of freedom and the price of oil. There are a lot of opinions about Friedman’s theory, but if you correlate oil prices and the growth of democratic progress in the oil rich states there is an inverse correlation. As oil prices go up the opportunities for the development of democratic institutions in countries benefitting from increased oil revenues seem to decrease.

So the question is how that might relate to current conditions in the US. It is certainly true that the economic conditions of the last few years have garnered the attention of both political parties. Much of their efforts to resolve domestic economic issues continue to be akin to a mating dance of two large birds as they try to develop polices that will work and support their political objectives. All of this activity tends to pull the politicians away from the international scene and cause them to focus on domestic issues. You know, it’s the economy stupid.
Big oil, as we like to refer to it, is really nothing more than a distribution system for a product, crude oil, produced in the Mideast by many of the countries that dislike us the most. Big oil is a surrogate for these governments who produce crude oil and then use the enormous transfer of wealth caused by America’s demand for oil into revenue streams that, using Friedman’s theory of Petropolitics, restrict the development of freedom. With the US totally distracted by its own economic woes, these same countries have been able to continue to create crisis after crisis in the Mideast and elsewhere stretching US military resources to the breaking point and raising the fear level here at home while we are trying to resurrect a struggling economy.

With some pinging and testing, OPEC has discovered that they can quickly affect the rate of economic recovery in the US by merely adjusting crude oil prices. More accurately by increasing or restricting production. Their other big asset, the US commodities market, gives a big assist by manipulating crude oil futures prices in an often near panic as the oil rich puff and posture about oil production. The Mideast oil Barons have the US economy in the palm of their hands. In other words, using Big Oil, the Mideast crude oil producers can speed up or slow down the US economy almost at will.
Once again as the US economy begins to look positive, oil prices suddenly begin to rise. Market pundits and followers blame the Fed’s monetary policy saying oil is a commodity and merely adjusts its price to make up for diluted weaker dollar. Maybe, but what about this theory? If the US economy really did pick up steam and the public became less frightened and more positive, would the Obama administration be likely to turn more of their attention to international concerns and start putting more pressure on the Mideast regimes that are thwarting the freedom of their own people (Petropolitics) and threatening our security? It seems logical that a really strong US economy may not be in Big Oil’s best interest. Demand for gasoline and petroleum based products is remaining very strong in the US and so raising the price may slightly reduce unit sales but total revenues rise. Remember marginal returns from Econ 101?

The theory thus becomes if Big oil can keep the US economy in a mild state of crisis by manipulating consumer behavior through high gasoline prices, while not unduly reducing sales volume, revenue flow to petro states continues to grow. The petro states can become more totalitarian solidifying control within their own boarders, while government attention in this country must stay focused on internal domestic and economic affairs for political if no other reasons. Therefore the petro states can continue to successfully export terrorism.
It is a widely accepted view that oil money funds most if not all of the subversive and terror activity in the Middle East. The question then becomes are higher oil prices in the US the result of economic activity such as actions of the Federal Reserve, or are they a well calculated strategy on the part of the very interests we work so hard every day to protect ourselves from? Petro attacks instead of cyber attacks. One easy way to find out would be for the Obama administration to slam the door on oil prices through price control, restrictions on futures trading, or utilization of the strategic reserve or a combination of both. Dangerous and complex solutions to what may be the biggest threat to our long range economic recovery.
As long as Big Oil has its foot on the throttle of our domestic engine, economic recovery will be when they want it to occur and my bet is that is that will be much later than sooner.
Doc

Wednesday, February 16, 2011

Governor Scott’s Real Budget Problem - Budgets and Bureaucrats

Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, according to Amy Baker the State Legislature’s chief economist. That would put the deficit at about 3.6 billion dollars. The deficit is being driven by Medicaid costs, education costs and pension funds. County and local governments also face steep budget deficits in 2012. Governor Scott, Senate President Haridopolos and House Speaker Cannon seem to be converging on a series of solutions to cut costs. Governor Scott wants to lower property taxes, reduce or eliminate the corporate income tax and get employee participation in pension plans. The question is how do you do all of that.

As I set at the Inaugural Prayer Breakfast on inauguration day I looked around the room at probably 2000 attendees a many of whom were state, county and municipal employees. Those bureaucrats you hear so much about. It dawned on me that the real budget problems of state, county and local government probably reside right here with this group. Leaders like Governor Scott, Senate President Haridopolos, Speaker Cannon, County Administrators and Mayors all face the same issue. A bureaucracy has a real strong tendency to protect itself. Here are three examples that point out the problem.

The first is pothole budgeting. In this scenario, to reduce the budget, the bureaucrats lay off the guy or guys that actually fix the pot hole. The lowest paid people on the totem pole and also, by the way, usually the position where the government in question gets the smallest dollar benefit for the actual staff reduction. They don’t, in most cases, lay off the supervisor or the manager, or the assistant director, or the director. When people complain about the pot holes, the supervisor does not go fix the pot hole, nor do any of the managers or directors, they just keep collecting their salaries and blame budget cuts for deteriorating streets. Nobody in that chain wants to get rid of the person below him because THEY would actually have to do some real work. Governor Scott has a whole state bureaucracy full of this problem as does every county and municipal government of any substantial size.

In the private sector they solve this problem by expanding the span of control. Keep the workers and reduce the number of supervisors, and managers along with their aids, assistants and secretaries. With today’s technology, supervisors can manage a lot more people than they could even five years ago. There is a real good chance productivity will go up along with morale.

This same idea works in education. Take a look at the number of administrators, directors, program planners and other non-teaching jobs in the state and local education system. Spend some serious time reducing all of that overhead and less time fighting with the teacher’s union. It is time to stop letting middle management drive the train and paint the teachers and the teacher’s union as the problem while keeping all of these really cushy management jobs in place.

The second scenario is ballistic budget cuts. In this situation, under pressure to reduce cost, the middle level bureaucracy picks a program to cut that they know has a serious, dedicated constituency or even better a fanatical public following and recommend the whole program as a budget cut. Examples: Catastrophic cuts or elimination of social programs, entitlements, libraries, pools, public safety functions, arts or sports programs. These cuts are specifically designed to be headline makers, create fear and raise the ire of the public so the Governor, County Administrator or Mayor becomes an instant target. Never mind the fact that the program is probably loaded with excess baggage in terms of mangers, administrators, program directors or whatever and could be streamlined and probably maintained. The objective of the ballistic budget cut is to create a public furor that redirects the budget effort in an entirely different direction; and the ultimate goal is to position this particular area so it is completely off the budget cut radar. It happens every budget cycle and midlevel bureaucrats have become experts at orchestrating this type of budget scenario. Beware of the ballistic budget cut.

Then there is the whole issue of actual verses ceremonial budget cutting. Or the cut and shuffle. In an actual budget cut, the position is eliminated and person is removed from the payroll - gone. In government we have ceremonial budget cutting. We cut the position, usually with great fanfare, but miraculously the person is quietly shuffled to a new job often times with less responsibility but oddly enough at the same salary. Granted nobody likes to terminate people. Besides, if we really start that you might be next. The cut and shuffle process has got to stop if state, county and local budgets are going to get balanced.

Don’t buy all of those nodding heads and smiling faces in the budget meetings as you talk on and on about cutting the budget, programmed budgeting, doing more with less and those other budget cut clich├ęs. The smiling, nodding bureaucrats are likely working up their cut list of pothole patchers or the next ballistic budget cut so they can teach you who really runs the show.

Tuesday, February 8, 2011

Is Big Oil Sabotaging the US Economic Recovery?

Just as it looks like the US is crawling out of the worst recession in years, oil prices, and as expected, gasoline prices have begun to rise dramatically. The question is why and there are a lot of answers from a lot of people. Thomas Friedman’s “law of Petropolitics” suggests that there is a negative correlation between the “price of oil and pace of freedom,” which “always move in opposite directions in oil-rich petrolist states.” In other words there is direct link in the evolution of freedom and the price of oil. There are a lot of opinions about Friedman’s theory, but if you correlate oil prices and the growth of democratic progress in the oil rich states there is an inverse correlation. As oil prices go up the opportunities for the development of democratic institutions in countries benefitting from increased oil revenues seem to decrease.
So the question is how that might relate to current conditions in the US. It is certainly true that the economic conditions of the last few years have garnered the attention of both political parties. Much of their efforts to resolve domestic economic issues continue to be akin to a mating dance of two large birds as they try to develop polices that will work and support their political objectives. All of this activity tends to pull the politicians away from the international scene and cause them to focus on domestic issues. You know, it’s the economy stupid.
Big oil, as we like to refer to it, is really nothing more than a distribution system for a product, crude oil, produced in the Mideast by many of the countries that dislike us the most. Big oil is a surrogate for these governments who produce crude oil and then use the enormous transfer of wealth caused by America’s demand for oil into revenue streams that, using Friedman’s theory of Petropolitics, restrict the development of freedom. With the US totally distracted by its own economic woes, these same countries have been able to continue to create crisis after crisis in the Mideast and elsewhere stretching US military resources to the breaking point and raising the fear level here at home while we are trying to resurrect a struggling economy.
With some pinging and testing, OPEC has discovered that they can quickly affect the rate of economic recovery in the US by merely adjusting crude oil prices. More accurately by increasing or restricting production. Their other big asset, the US commodities market, gives a big assist by manipulating crude oil futures prices in an often near panic as the oil rich puff and posture about oil production. The Mideast oil Barons have the US economy in the palm of their hands. In other words, using Big Oil, the Mideast crude oil producers can speed up or slow down the US economy almost at will.
Once again as the US economy begins to look positive, oil prices suddenly begin to rise. Market pundits and followers blame the Fed’s monetary policy saying oil is a commodity and merely adjusts its price to make up for diluted weaker dollar. Maybe, but what about this theory? If the US economy really did pick up steam and the public became less frightened and more positive, would the Obama administration be likely to turn more of their attention to international concerns and start putting more pressure on the Mideast regimes that are thwarting the freedom of their own people (Petropolitics) and threatening our security? It seems logical that a really strong US economy may not be in Big Oil’s best interest. Demand for gasoline and petroleum based products is remaining very strong in the US and so raising the price may slightly reduce unit sales but total revenues rise. Remember marginal returns from Econ 101?