Sunday, April 29, 2007


Two items in the April 23, 2007 Wall Street Journal that, taken together, suggest the United States' slippage as unipolar world power:

First, the price of West Texas crude oil -- long a standard for gauging the price of oil, has drifted further and further from the price of other, similar, grades of crude oil, leading some "market participants", quoted by reporter Ann Davis, to call West Texas crude "a broken benchmark". As a standard, traders used contracts for the West Texas Intermediate (WTI) to hedge against overall fluctuations in oil prices. If that price no longer reflects world prices (e.g., oil of comparable grade from the North Sea, or Middle East oil), then its value as a hedging device wanes. Part of the price disparity is due to temporary factors that have created a glut of oil at the delivery point used to measure the oil price -- a terminal in Cushing, Oklahoma -- which, over time, should be corrected, and the price come closer to the overall world price. But Middle East production is some 20 times West Texas production (per the article, "West Texas Oil Falters in Its Role As a Benchmark"), and so the West Texas oil trading contracts do have the same meaning as a proposed new benchmark for Middle East oil, to be traded on the Dubai Mercantile Exchange (as opposed to the New York Mercantile Exchange, or NYMEX, where the WTI contracts are traded). It should be noted that NYMEX is part of the joint venture that has formed the Dubai exchange.

Second, the article "An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths" describes how the U.S. stock indexes have been trailing important stock indexes in other markets. The Dow Jones World Index is up 8.5% this year, while the S&P 500 is up "only" 3.9%. This de-coupling would suggest that the U.S. economy is no longer the big dog, with the other national economies following in tandem. Instead, these other national economies are beginning to show their independence. Half of the world's stock market capitalization -- the value of the shares traded on those markets -- is overseas now, according to one fund manager quoted in the article.

Perhaps a better indicator is the value of the U.S. dollar, which according to the April 28 WSJ, is at its lowest point ever against the Euro. Compared with the Federal Reserves Trade-Weighted Index, the dollar is at its lowest point since it created the index in 1973 (although not as low as it was in 2004 if inflation is taken into account).


Sunday, April 01, 2007


George Monbiot, the Guardian columnist, has written a powerful indictment of the disasters that occur when environmental "solutions" are forced through the sieve of our capitalist economy. His March 27 column, "If we want to save the planet, we need a five-year freeze on biofuel" catalogs the destruction that is taking place as venture capitalists, hedge funds, agribusiness, and their paid lap-dogs in government push fuels derived from plants as the solution to what? Not global warming, although ethanol and bio-diesel may have a net lighter impact (although Monbiot cites some figures that suggest that some biofuels will contribute more to climate change than our friend oil). No, the driving force is our heavy consumption of (or as George Bush says, "addiction to") oil.

The economic and environmental dislocation following the investment in plant-based fuels has occurred rapidly, and highlights the interconnections within the economy. Nothing can happen without disturbing other things. The overall price of energy -- in particular oil -- rises, making other fuel sources more economical. As ethanol plants sprout across the Midwest, the demand for corn rises, causing corn prices to nearly double. But now, the ethanol distilleries are competing with food producers, so the price of corn-based foods -- everything from tortillas to pork to soda pop -- is affected. In the U.S., the grocery price increases may be diffused for a while, but in countries like Mexico, where tortillas are a food staple, people have rioted in protest of the increases.

Palm trees are another source of biofuel, where the oil is used to make bio-diesel. The demand for palm oil has resulted in the clearing of forests and replacement with palm tree plantations, to such an extent that it is now considered the biggest source of deforestation in southeast Asia. Monbiot cites figures that say that palm oil plantations are destroying 0.7 percent of the Malaysian rainforest each year; he cites a UN report that says that 98 percent of the Indonesian rainforest will be gone or degraded by 2022 -- fifteen years from now. The rainforest in Brazil is also under pressure from fuel plantations. In the U.S., farmers now have an incentive to bring fallow or marginal land (marginal in agricultural terms) into production -- i.e., habitat destruction.

(This is another example of the "ecosystem of globalization" -- the transformation of wild or natural or diversely complex habitats into managed plantations. We still have an environment, but instead of the rich mix of plants and animals in, say, the Malaysian rainforest, we will have rows and rows of monoculture.)

The solution, voiced from many quarters, is not finding new sources of fuel, but finding ways to reduce demand, through more efficient vehicles, conservation, a shift in consciousness. Biofuels represent a great capitalism solution to the peak oil problem -- at first glance everyone has their cake and can eat it too -- but it is quickly becoming apparent that biofuels are no magic fix. If anything, they are clarifying the limits of being able to solve the environmental crises within the context of capitalism.