If you haven't noticed, Alan Greenspan, the former Fed chief has been as busy as a hero in a Univision telenovela as he makes the circuit plugging his new book. Greenspan, once one of the most powerful men on earth, has returned to private citizenry and is taking the opportunity to make a few bucks off of his outsized notoriety while he repels charges made at him from left and right.
Like an Iranian poobah, Alan has taken it upon himself to categorically deny the reality of his responsibility for any of the myriad financial crises left in his wake. Did Alan have anything to do with the lame dollar that won't even get you a postage stamp in Rome, or the billions poured down the Iraq quagmire (much gone missing, BTW), or the monstrous US domestic and trade deficits, or 20 years of stagnating middle class wages in the wake of blind-eye trade policies, or the soaring price of oil, or the retreat of the US on the world development stage or the Tech Boom and Bust or the Housing Boom and Bust or the threat of trillions in phony paper derivatives busting or....... you name it?
The answer, of course, is, NOT!. The Mago of the Fed whose every pause could shake markets from Shanghai to Chicago argues that in fact he was hardly listened to.
His advice to Bush to go into Iraq to ensure the flow of oil? Well, he did say it but he believes the administration when they say it had nothing to do with their own reasons for negating the UN Charter and launching a preemptive war of occupation. As for his support of the Bush tax cuts for the top echelons? Well, according to Alan that support was given with a number of caveats regarding spending. Unfortunately, he laments, no one in the Republican controlled Congress or the White House listened to him and when he finally began raising Fed fund prices to force up long term rates that would impact mortgage rates? .... Well, the markets just did not take the Fed's lead, despite the 100's of PhD's on its payroll.
Celebrity and the Media
Books, of course, sell best if they contain some juicy insights into the real thinking of those wizards who finally come out from behind the draperies. In Alan's case, it's his take on Administration spending and the reasons for war that have particularly stuck in the craw of his former conservative allies who, after successfully lobotomizing the media, have been busily running the country into the ground while making sure nobody is really noticing.
They don't need their ex-generals telling everybody about their screw-ups and they certainly don't need their ex-Fed Governor moving key economic blunders into perspective in his rear-view mirror. Hand it to Alan that he has been willing to go on just about every talk show that would host him from Democracy Now to Fox News.
We live in a top down media world that allows ample room for the great to paper over their worst mistakes and in some cases to handily point the blame elsewhere. Needless to say, the Oracle of Constitution Ave. is no fool and is quite aware that he, in his capacity as Chief Guru, has very well served what he can't help implicitly acknowledging to be one of the worst administrations in our long history.
Greenspan has presided economically over one of the most transformative periods in our economic history. He has encouraged free trade even if it is highly unfair trade, he has aided and abetted the running up of deficits that in this one administration have created more debt than in all prior administrations combined, he has blessed tax cuts that were earmarked for the wealthiest strata and his interest rate policies have fanned bubbles that most benefit the financially agile and plugged in. During the same period the working segment of the US population both in manufacturing and services has seen weak job growth (in services with losses in manufacturing jobs) no growth in real wages and a crippling loss in benefits, particularly health and pension benefits, the same benefits that Greenspan now warns are about to drag the entire economy down.
It's here where the Mago has to do his heaviest tap dancing and he takes on the task by putting on a halo and a twinkle. He is, he says, quite worried that great imbalances in wealth will come to undermine the stability of our political system. The founders, he decries, didn't find a solution to that problem. Quite astonishingly a number of highly sophisticated interviewers of the Rehm, Rose ilk let him get away with that one. The corrosiveness of great inequality in the Greenspan Age? Well just blame it on the founding fathers!
Dianne Rehm even noted that he had something in common with John Edwards on his protestations regarding the great inequalities in our society, as if Greenspan single handedly has not had more to do with these inequalities than any other member of this Administration or Congress!
In other words, forget about the Fed dropping interest rates to below zero in real terms and the resulting housing bubble, import bubble and finally in a currency crisis that is still in the early stages of unfolding as we write this. Greenspan has said adios, has moved comfortably to the sidelines, his legacy papered over, he hopes, for all to hear.
Alan protests that he is also keenly worried about our loss of civil liberties although he makes it clear (he long ago mastered the art of having as many hands as a Hindu god) that personally he thinks that Cheney and Rumsfeld, whom he has known since his Ford Administration days, are honorable men. Someone, he worries, ingenuously, is stealing our most sacred liberties but how it is coming about, he can't really say.
But where Alan has had his biggest pushback (and "resonance", also among the liberal blogosphere as Charlie Rose was ready to derisively point out) has been in his candid comments on the Iraq War and petroleum. Forget the conservative bellyaching over the deficit, it didn't affect their love for Reagan, who paved the way on this, it's on the oil and Iraq paragraphs in his book that the maestro touched the real third rail of the Bush presidency.
Alan, as good a weaver as can be in a very tight circle, is not a great open-field runner, it turns out. He pauses, he staggers and he hems and haws to draw breath when he should be juking. But on the question of the world's energy supply, the significance of a bottleneck at the Straight of Hormuz and the potential for incredible disruption that the narrow supply line has become, Alan is uncharacteristically straightforward.
He did, he says, encourage Bush to invade Iraq because he perceived Saddam Hussein to be intent upon the goal of putting a stranglehold on the world's major supply of energy. Greenspan worried, he says, that Saddam Hussein would purchase a stray nuclear device, say from a hoisted stockpile of the ex Soviet Union. And so, when asked, he says, he urged on military action.
In his Diane Rehm interview, which came after Cheney came out of hiding to blast him in the Wall Street Journal over his Iraq oil remarks, Greenspan demurred, claiming not to have any real clout in the matter. Nonetheless he then went on to reiterate his warning that the oil supply was of major concern to him in his past official position and today as a citizen. Interestingly, when asked by Rehm if he felt the same about Iran today as he did about Saddam then, Greenspan offered that he thought the situation in Iran was more nuanced with what he saw as a counterbalance of political forces there, something that didn't exist in Iraq.
Mirror, Mirror on the Wall
What then becomes most obvious in all this is our utter inability through the media spectrum to deal with our most pressing issues even when they are staring us in the face and even when decidedly non-blogger guru's like Alan Greenspan lay them out on the table front and center. In all the interviews we tuned into, Greenspan was allowed to back away, in face of the Cheney refutation in the Wall Street Journal from any interpretation of his words that might be taken as providing a real motive to the old boy oilmen for going in and planting 160,000 US troops on top of an alleged 112 gigabarrels --according to a Wikipedia entry this puts it as the third largest proven reserve after neighboring Saudi Arabia and Iran-- of untapped oil. To put that in perspective, today's largest producer, Saudi Arabia presently produces 4 gigabarrels --again from the same Wikipedia article-- per year and may have already tapped much of the oil it claims to still have under its sands.
$80 a Barrel Oil
Here's it is: In 2007 and to no one's surprise the amount of oil being consumed is exceeding the amount being discovered. We are, and have for half a century, been pulling down world reserves to the point that we have probably used up more than half of all the oil we are ever going to be able to extract at a reasonable cost even as folks in large population countries like China and India look forward to buying their own energy guzzling versions of the American way of life.
What's also not being really noted is that the price of oil is at an all time high in dollar terms, having passed $80 dollars a barrel. For months the dollar has been falling in the face of rising oil costs and that is putting further strains on the world economic system that still relies on the dollar as the ultimate reserve currency.
And so the US Federal Reserve, has a very tricky role to play in all this. They have the responsibility of keeping the economy on track while avoiding either a rapid jump or drop in prices. Since the dollar has a special role as a reserve currency it is held by foreign governments around the world to shore up their own currencies. The Fed works best when foreign central bankers and the major private financial sector players go along with the concept that what is good for the US economy is good for the world economy. If too many private sector bankers see holding dollars as too costly a position to justify (remember, that as short a time as less than a decade ago you only needed 80 cents to buy a Euro and that today that same Euro will cost you over 1 buck forty-three, it's hard to see how anyone can be happy holding a sinking currency that could go into free fall should the Fed lower rates quickly to hold off the looming recession in this country), than central bankers either have to lower rates in their own countries in the face of inflationary forces that would be fanned by this, or have to go into the market and soak up the dollars that are being shed by the private sector. Needless to say, there is no central bank in the world, including the Fed that could stem that move if the bankers and speculators, including the very hedge funds that Greenspan continues to believe are benign forces, start to smell the big profits associated with dollar blood in the water.
The Golden Goose Theory
The world's largest economy, the US, and the world's fastest growing economy, China, are still joined at the hip. As the US dollar goes down we and the Chinese, pay more for oil that is now only nominally being priced in dollars but appears to be following hard currencies as they revalue against the floundering greenback.
This means that more and more of China's cheap dollar profits are being sucked out by the petroleum producing countries and the big distributors whose profits also climb with dearer petroleum. This is putting a heavy strain on the Europeans who don't want to be priced out of certain global markets, like automobiles, aircraft, wines, etc. by the strong valuation of their currencies. And then there's the giant question; will the Chinese and Saudi governments continue to prop up the dollar cum golden goose?
Oil and the American Century
As early as the 1960's a leading oil industry geologist, M. King Hubbert, began talking about peak oil (check out our Blowback article, Twin Peaks). The term has come to loosely signify the moment when there is less petroleum in the ground than has already been extracted. In the US, the world's leading consumer of petroleum, peak oil occurred, as Hubbert correctly predicted, some time in the mid 1970's. Since then the US has progressively expanded the percentage of oil it imports versus the amount developed domestically.
Despite the decline in local production, the US, followed by Great Britain remains by far the dominant player in the world oil industry. US companies provide the bulk of the service industry that discovers, develops and builds drilling capacity, the pipeline and shipping backbone of the distribution system and the downstream refining and marketing capacity that defines the world energy system.
Oil has been at the base of a great amount of the wealth held by leading American families, including of course the Bushs, and it is no coincidence that the growth arc of American military and political might closely parallels that of our dominance of the energy industry.
As long as the world economy continues to grow, the demand for energy will grow apace. The great question of our time is what form future energy supplies will take and who will control that supply. Compared to its two present main rivals, coal and nuclear, petroleum appear to have clear advantages: simplistically, coal is dirtier and nuclear much more potentially toxic.
But oil's great advantage over electricity from the above sources is that it can be autonomously carried from place to place quite safely. In other words, if cars, airplanes, etc. could store enough electricity in a breakthrough battery, say, to cover their expected ranges, electricity would suddenly emerge as a serious rival, though climate questions would remain regarding how the electricity was produced.
Oil's other great advantages: its incumbency first and foremost and its relatively competitive price, would be sorely challenged should someone announce tomorrow a new battery technology that promises durability and range and to reduce the size and weight of the electric storage to that of say, a full tank of gas. Today's hybrids would quickly turn into tomorrow's plug-ins.
There are a number of ways for electric energy to be produced efficiently without further endangering the environment; first among these is probably the conversion of ocean and tidal movement into electricity as well as the potential of wind and solar to be developed in highly distributed settings.
Oil presents the same quandary that mainframe computers did for security 50 years ago when the government started looking around for something less central and therefore less vulnerable to a single strike. That government funded effort, as we all know, led to the development of the highly distributed network that came to be called the Internet.
The giants of the petroleum industry (EXXON, Shell, BP) know all about peak oil, they also have understood the implications of expensive petroleum. They also know what happened to IBM once smaller servers were introduced. They know that as long as they continue to bring relatively cheap oil onto the market and box out the speedy development of alternative technologies, current market trends might be stretched out another 20 or 30 years until the new technologies --that they intend to fully control-- inevitably force a turning point. No doubt they are already planning for that shift in their business strategies. But there is also no doubt in the minds of many, and we'll include Cheney and Bush into this group, that status quo can not possibly last another decade, much less a score of years unless the Iraq oil flow is "secured", in US/UK hands and Iran is defanged.
They will resist calls for a Manhattan type project that might bring about real change and they will continue to deny petroleum's footprint in the global warming crisis.
The future of energy should be at the center of the next presidential debate. It's already quite clear that our media will follow the horserace dynamic instead and leave the issues to the political agenda of the elite.
For once, we find ourselves in agreement with Alan. To understand the Iraq War and a possible way out, it's necessary to understand the role oil is playing in this entire Middle East situation. Forget about Bin Laden, forget about Israel .... these are basically sideshows.
The Embedded Media
What is so irksome about the present situation is the way the media continues to be moved by the agenda of hidden forces. Why, it's as if they were "embedded" in the Administration!
The media makes no effort to get to the bottom of why Bush can wage a war without asking American's to pay for it. Occupying now, and staying far into the future will suck trillions from our common national wealth, trillions that could pay for health care, jobs at home, social security, a cleaner environment, efficient transportation, etc. But, quite mysteriously, the financial cost of the war is forever treated as a sub-issue as if we can run up debts on this forever without sinking our role in the present world economy and sinking the prospects of the coming generations who will be paying interest on the war throughout their lives.
But the worst blunder in the public discourse is not understanding Bush/Cheney's resolve to sit in Iraq as long as possible. There are myriad arguments and nuances to deal with when it comes to getting out of this mess, that is our reality. Politicians and commentators argue the various merits and come down across the spectrum. What isn't grasped is that Bush/Cheney have no doubt why we are there for as long as sustainable...check that! .... B/C have 112 gigareasons why they have put American troops, at whatever cost, on top of the sands of Mesopotamia for as long as it takes to secure that country and the region.