Gold and oil prices continue to climb while the markets in Japan and the US begin to shake. Precursors of a larger crunch?

Gold closed at 553.80 dollars an ounce on Friday, down 0.6% from $556.90 the Friday before. The dollar closed at 0.8241 euros on Friday up less than 0.1% from 0.8236 euros at the end of the previous week. That put the euro at 1.2134 dollars, compared to 1.2142 the week before. Gold in euros would be 456.40 euros an ounce, down 0.5% from 458.66 at the end of the previous week. Oil closed at 68.48 dollars a barrel, up 7.1% for the week from $63.92 the Friday before last. Oil in euros would be 56.44 euros a barrel, up 7.2% from 52.64 euros the week before. The gold/oil ratio closed at 8.09 Friday, down 7.7% from 8.71 the previous Friday. In the U.S. stock market, the Dow dropped sharply on Friday, closing at 10,667.39, down 2.7% for the week from 10,959.87 the Friday before. The NASDAQ closed at 2,247.70, down 3.1% from 2,317.04 for the week. The yield on the ten-year U.S. Treasury note was 4.35%, unchanged for the week. The problems with Japanese, then U.S. stocks combined with a sharp rise in oil prices, may be a sign that the real players feel that the collapse is occurring. They have seen it coming for a while now, but there is always money to be made staying in the markets until the small investors get scared and everyone dumps. They may be sensing that the small investors, having seen rises in oil, gold and drops in stocks and wages are becoming spooked, no matter how much happy talk about the economy comes out of the mainstream media. In fact, even in the mainstream media the talk is less and less happy:
Iran Sanctions Could Drive Oil Past $100

Associated Press
Sun Jan 22, 2006

A surge in oil prices last week to almost $70 a barrel on concerns about the restart of Iran's nuclear program only hints at what may lie ahead. Prices could soar past $100 a barrel, experts say, if the U.N. Security Council authorizes trade sanctions against the Middle Eastern nation, which the West accuses of trying to make nuclear bombs, and Iran curbs oil exports in retaliation. A sharp global economic slowdown could follow. That's the dilemma the United States and European nations face as they decide whether to act. But Iran would also pay a hefty price if the petro-dollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with a 14 percent unemployment rate. "They would shoot themselves in the foot," said Mustafa Alani, director of national security and terrorism studies at the Dubai-based Gulf Research Center. "It's one thing to test the market psychology, it's another to take the actual step and stop oil exports." Iran, the second-largest oil producer within the Organization of Petroleum Exporting Countries, exports roughly 2.5 million barrels per day — 1 million barrels more than current excess production capacity worldwide. It also controls the strategic Strait of Hormuz, a critical shipping lane in the Middle East. "Even if Iran pulled a small amount of its oil off the market, say it pulled a half million barrels a day, I could see oil prices literally jumping over the $100 per barrel mark," said James Bartis, a senior researcher at Rand Corp. But other oil analysts say prices would likely not climb much higher than $75 a barrel before strategic reserves would be released and demand would begin to taper off as economic activity slowed around the world.
Higher fuel prices will most likely cause stagflation, inflation together with recession. Usually, inflation accompanies economic booms, but since hydrocarbon fuels are input at every step of agriculture or manufacturing, a sharp rise in oil prices can cause inflation even during times of low demand. Stagflation presents problems for economic policymakers since the usual method for fighting inflation (interest rate increases, employment decreases leading to wage decreases) make any recession much worse. For the average person, stagflation is difficult because prices of food, energy and goods go up when wages and employment fall. Here's an example from the United Kingdom of how the lag between the rise in energy prices and higher prices for finished products reduces profits:
Fuel prices put the squeeze on manufacturers

By Jamie Chisholm
Economics Reporter
January 16, 2006

The stubbornly high cost of fuel is continuing to put the profit margins of UK manufacturers under pressure, the latest factory gate price data showed on Monday. The Office for National Statistics said that prices charged by producers climbed 2.4 per cent in the year to December, but fell by 0.2 per cent compared with the previous month. However, input prices rose 17.2 per cent on an annual basis, the highest since records began in 1991, and increased 1 per cent in December on a month-on-month basis. December's month-on-month decline in factory gate prices marked the third month in a row that companies have had to charge customers less. The trend may be considered good news for the Bank of England as industry's difficulty in pushing through price rises should help curtail increases in headline inflation. A report on consumer prices is due on Tuesday morning. Investors, however, are likely to be concerned that companies' inability to pass on the higher costs of materials and fuels means their margins are being compressed. Howard Archer at Global Insight thought that the factory gate numbers did not bode well for future activity in the manufacturing sector. “Clearly, manufacturers are still finding it extremely difficult to pass on their high input costs amid continuing intense competition within the sector and relatively soft demand, but a key question going forward, is will these higher input prices increasingly filter through the supply chain? Meanwhile, the increased squeeze on manufacturers' margins threatens to further weigh down on employment and investment in the manufacturing sector.” said Mr Archer
George Bush and the Neocons seem to be doing everything in their power to increase oil prices. They are also doing their best to bankrupt the United States Treasury as quickly as possible. There are a lot of reasons to think a collapse is inevitable even with wise leadership. How can it be avoided with that gang in power? According to Bellaciao, bank employees in the United States have been instructed in what to say and do when the collapse hits:
Collapse of U.S. Economy Imminent

In its attempt to establish a world empire dominating every nation on the planet, the U.S. has exhausted its ability to finance the expansion and the country now faces imminent financial collapse. From all indications, it looks like 2006 will spell the end for America. … Bank Of America and Compass Bank managers (probably all other U.S. banks too) have been instructing their employees in the last few weeks on how to respond to customer demands in the event of a collapse of the U.S. economy - specifically telling the employees that only agents from the Department Of Homeland Security will have authority to decide what belongings customers may have from their safe deposit boxes - and that precious metals and other valuables will not be released to U.S. citizens. The bank employees have been strictly prohibited from revealing the banks' new "guidelines" to anyone. (however, employees have been talking to friends and family) The next time you visit your bank, ask them about it - then ask yourself, why is this information being kept secret from customers and the public - what's really going on? Summary: The U.S. economy is broken, the United States is bankrupt - the unchecked spending by this administration, the illegally waged wars against Afghanistan and Iraq, the cost of unprecedented weapons and military build-up - have all contributed to an irreversible emergency which is threatening our nation's existence and our very lives.

Hospitals are closing, major corporations are declaring bankruptcy and/or moving their companies overseas, the monopolized news media spews nothing but lies, and our fearless leaders have turned out to be only ruthless criminals hell-bent on destabilizing our country and robbing us all. Be aware - we stand at the threshold of total ruin - the international bankers and war profiteers care little for our lives and families - these demons worship money and all things vile and evil - they have very much to gain from war, misery, disease, famine, chaos and death (our deaths). We are right on the edge - the Treasury is already overextended - the U.S. government cannot (and will not) care for its own citizens' needs, nor secure our borders against illegal aliens - plus, the whole "terrorist" thing is a cruel hoax perpetrated against a trusting citizenry - and only designed to instill fear and garner support for the genocide taking place in Iraq. Should America (along with British & Israeli forces) launch a war against Iran, or another country, without yet paying for, or even recovering from the current losses in Iraq and elsewhere - the costs of such of an invasion will overwhelm an already crippled economy and push the U.S. over the edge into oblivion. Question: Considering the U.S. Treasury Notes that China currently holds (which keeps the U.S. economy going)... Do you think China will continue to support a country's economy (the U.S.) whose military launches a nuclear strike against its neighbor (Iran) - thus delivering a blanket of radioactive fallout over western Chinese provinces - killing hundreds of thousands, if not millions of its citizens? I think not. Factoring in the aforementioned points of "preparation" engineered by U.S. authorities, I'd say there's a stinking rat in the woodpile ...can you smell it too?
How different is the above passage in a radical website from what we can read in mainstream outlets like this one from the Chicago Tribune?

Shelter anyone?
We're not prepared for an economic hurricane either

By Alan Tonelson, research fellow at the U.S. Business and Industry Council Educational Foundation and the author of "The Race to the Bottom"
January 22, 2006

AS ITS BROKEN LEVEES AND drowned pumping systems made so painfully clear, if the Big One was widely predicted in New Orleans, it was never genuinely feared. After Hurricanes Katrina and Rita, disaster preparedness and prevention are no longer completely academic subjects. If only such realism could be injected into U.S. policymaking before a widely predicted economic disaster finally strikes. Hurricane-force winds of overspending are building storm surges of debt that tower over the levees and pumps available to American leaders. These mounting imbalances could wash over the economy and leave America and the world submerged in a deep, long-term downturn.

This building economic storm has generated at most pro forma acknowledgments. Even worse, discussing crucial international dimensions of the looming emergency is usually considered taboo, even though numerous, ongoing policy mistakes on this front have heightened America's and the world's vulnerability. Ironically, these failures were showcased in the most prominent way possible just before Katrina, when key global economic aristocrats gathered for an annual gabfest in Jackson Hole, Wyo. Beneath the Tetons, bankers, policy experts, finance whizzes and academic gurus alternated fly-fishing outings and nature hikes with sweeping discussions, such as "The Greenspan Era: Lessons for the Future." The subtext of the discussion: Has the U.S. economy become a bubble inflated by investors and consumers who have totally forgotten the concept of risk? And have Alan Greenspan's policies encouraged these excesses?

Upon returning to the real world, however, these folks disregarded any eloquently voiced concerns. They simply refused to acknowledge that specific U.S. foreign economic policies are inexorably widening the gap between the nation's desires and its ability to pay for them responsibly.

America's dangerously weak finances stem partly from the public's ravenous appetite for material goods and government services, combined with a bipartisan determination in Washington to feed them. The world's willingness to keep showering an overstretched America with cheap credit has been central as well. Flip side: Inadequate income However, the flip side of overspending is under-earning, i.e., inadequate income. And whether the problem is domestic wage stagnation or lagging exports, a major contributor has been a national trade strategy that tends to be championed by business and policy elites. Inflation-adjusted median wages today have fallen back to 1967 levels, according to Department of Labor statistics. The only way for the typical American family to maintain its living standards has been to spend down its savings, double its outstanding household debt since 1992 (after adjusting for inflation), according to The Wall Street Journal, and often send a second wage earner into the workforce. Surely at least some blame belongs with globalization policies that have resulted in the outsourcing of millions of the nation's best-paying jobs and job opportunities, and that have directly or indirectly exposed most other workers to the undertow of the "China price."

…Containing today's likeliest economic disasters is even more important than preventing or containing natural disasters. An economic hurricane like the one gathering strength could flatten the world economy, not just local or regional economies. And unlike imminent natural disasters, economic disasters are directly strengthened by each new policy mistake and the excesses it breeds. As widely observed but clearly not genuinely believed the larger a bubble becomes, the more destructive its bursting. The resulting political storm will dwarf the ongoing post-Katrina finger-pointing because Mother Nature will be completely off the hook.
The analogy of the U.S.-led world economy to Hurricane Katrina may be more apt than most suspect. Just as many New Orleans residents heard an explosive charge at the moment the levee broke, leading many to suspect a deliberate trigger to the disaster done under the cover of a natural disaster, could it be that there is a deliberate triggering of economic collapse going on? If so, why? In any case, what many in the United States have begun to realize since Katrina (now that it's perhaps too late to do anything about it) is that their economy has been tranformed into a third world economy operating to the benefit of a kleptocracy (rule by thieves):
Neoliberalism, Katrina and the Asian Tsunami

Casualties of War

January 21, 2006

The recent controversy surrounding the plan to rebuild New Orleans and the passage of the first anniversary of the Asian tsunami cap a year in which a host of catastrophic disasters caused widespread death and destruction and garnered worldwide media attention. In so doing, these disasters revealed certain fundamental truths regarding economic development in both the developed and developing world. Two of the most well-publicized disasters in particular, the Asian tsunami and Hurricane Katrina, exposed the extent to which public welfare and security were undermined by governments' deference to the interests of private profit, militarism, and laissez faire capitalism. These events have opened the door for a fundamental reevaluation of the current neoliberal model of economic development being pursued in the United States and elsewhere.

While most people in the U.S. generally give little thought to issues of so-called Third World development, they would do well to pay closer attention, because politicians and policy makers in this country have employed many of the same austerity measures that have been inflicted on Third World countries for decades to instill fiscal discipline in the domestic economy. As in the global South, however, these strategies are driven less by notions of fiscal conservatism than by a stubborn adherence to a set of economic policies that have successfully trapped developing countries in a spiral of poverty, debt, environmental degradation, and social instability for decades. It follows that the application of these selfsame austerity measures in the developed world over the last 30 or so years will have reduced First World nations like the U.S. to the same level as Third World countries.

The Near Abroad

As the leading proponent of neoliberalism, an economic paradigm that promotes corporate governance over state governance through (1) financial market liberalization, (2) the privatization of public industries and services, (3) the withdrawal of government intervention in the market economy, and (4) unrestrained foreign trade, the U.S. has itself adopted many of the same austerity measures it has helped to impose on developing countries around the world.

In 1979, for instance, Federal Reserve Chairman Paul Volker inaugurated an era of falling living standards and increased joblessness in the U.S. when he raised interest rates to unprecedented levels on the pretext of fighting inflation. In reality, Volker undertook this course of economic shock therapy in order to suppress wages in the labor market and to restore profitability to the financial sector, which had been losing money on low-interest loans whose margin of return was diminished by the high inflation rates of the 1970s. What followed was higher unemployment, greater poverty, increased homelessness, lower rates of economic growth, and the creation of the Rust Belt. The effects of this particular passage of U.S. economic history still linger on today, and a comparison between the U.S. and several countries that rank among the world's poorest will serve to illustrate the fact that the U.S. is the one developed country in the world that bears the most similarity to a Third World nation.

According to the 2004 United Nations Human Development Report, Sierra Leone is the poorest country in the world with a national debt of about $1.7 billion. In comparison, the U.S. national debt stands at $7.8 trillion. Niger, the world's second poorest country, has a population of about 12 million people. Contrast this with the 37 million people in the U.S. who are now living below the poverty line. By official measures, the federal poverty rate currently stands at $9,310 a year for individuals and $18,850 a year for a family of four in the 48 contiguous states. Although it is possible to live quite well in the Third World on these sums of money, citizens subsisting at these levels in the U.S. often find themselves engaged in a daily struggle to maintain food, clothing, and shelter. This is because the basis for the federal poverty rate has remained unchanged since 1964, despite substantial increases in the cost of living. Adjusted for inflation, the federal poverty rate amounts to no more than $3,000 a year. In the lexicon of international development, that amounts to less than $9 a day.

High Poverty and Inequality

Before the arrival of Hurricane Katrina, New Orleans was home to about 500,000 inhabitants, a majority of whom were African American. Of that number, roughly one-third (100,000 people) lived in poverty. This same number of poor people were left to fend for themselves in the wake of the hurricane and were unable to evacuate the city, because they had neither the means nor the ability to do so. This situation highlights the following fact: Just as Third World countries are characterized by high levels of poverty and enormous income gaps between rich and poor people, so too is the U.S. Indeed, the 2004 UN Human Poverty Index found that the U.S. has the highest level of poverty and income inequality in the entire Western world.

The rankings were determined by tallying up the following four factors among "high income" countries claiming membership in the Organisation for Economic Co-operation and Development (OECD): (1) probability at birth of not surviving to age 60; (2) percentage of adults lacking functional literacy skills; (3) percentage of people living below the income poverty line, which is defined as 50% of median adjusted disposable household income; and (4) long-term unemployment, which is defined as 12 months or longer. To put this information into perspective, in China the richest 10% of the population was about 12 times wealthier than the poorest 10% at the end of the first quarter of 2005. In comparison, the richest 5% of the U.S. population was already 19 times richer than the bottom 20% by 1999. Moreover, the U.S. Federal Reserve reported that between 1998 and 2001 the income gap between the top 10% and the bottom 20% grew by 70%. Additional studies have further shown that the richest 1% of the population in the U.S. has appropriated 94% of the growth in total income since 1973. This also gibes with findings by the U.S. Census Bureau which show a decrease in the Gini coefficient between 1947 and 1968 followed by a marked increase between 1968 and 1999. Developed by Italian statistician Corrado Gini, the Gini coefficient is used internationally to measure income inequality. On the Gini scale, the number zero corresponds to complete income equality, meaning that income is perfectly distributed amongst all citizens: the number one (1) corresponds to perfect income inequality, meaning that only one person has all the income. The developed nations that rank ahead of the U.S. in the UN Human Poverty Index have coefficients between 0.24 and 0.36. In 2004 the U.S. had a Gini coefficient of 0.45, worst among all the developed nations in the world and ranking behind even Cambodia (0.40). China currently has a Gini coefficient of about 0.48.

Joining the Third World

One of the obvious consequences of this large income gap is that one out of ten households in the U.S. experiences hunger or the risk of hunger. Nationally, this translates to about 36 million people or 11% of the population, roughly the same number of people currently living in poverty. Remarkably, this is almost three times greater than the number of people in southern Africa who went without food in 2002. Unfortunately, these numbers are likely to increase in the U.S., as Republicans seek to further reduce spending on public subsidies for the food stamp program. This, despite the fact that more than 25 million people rely on the program to provide them with food, and that hunger has risen four years in a row. Another consequence of the large income gap in the U.S. is that every year at least 3.5 million people lack clothing and shelter. That is, they are homeless. The U.S. is not alone in this regard. Indonesia has a population of about 242 million people, which approximates the 296 million people living in the U.S., and it generates roughly the same number of homeless people as the U.S. The difference, of course, is that the U.S. is a First World country. Or is it? In the developed world homelessness is mitigated through a vigorous and well-funded public education system, job training, a comprehensive public housing policy, income protections such as unemployment benefits and public pensions, and most importantly a universal health care system that provides medical care, mental health services, drug treatment, and domestic violence counseling. Additionally, joblessness has traditionally been alleviated via government spending on public works projects.

The analogy of the U.S. as a Third World country becomes even clearer, when one considers that in the developing world regulations protecting the environment and the safety and health of consumers and workers are either minimal or non-existent. At a time when developed countries in Europe and Asia are expanding these protections by requiring companies to assume complete liability for the environmental impacts of any product sold in the European Union for the life of that product, a concept known as Extended Producer Responsibility (EPR), public officials in the U.S. are intent on rolling back or eviscerating many of the landmark environmental regulations in this country such as the Clean Air Act, the Clean Water Act, and the Endangered Species Act. The fact that public officials at the local, state, and federal level cannot persuade private companies ranging from computer makers to manufacturers of cosmetic beauty products whose merchandise is often comprised of toxic chemicals and other carcinogenic compounds to comply with regulations regarding recycling and labeling that they have already submitted to in Europe, Japan, Taiwan, and Korea demonstrates exactly how far behind the rest of the developed world the U.S. truly is.

Greater Disparities, Shorter Lives

All of these factors likely help to explain why despite spending 15% of its gross domestic product on health care, more than any other country in the world, the overall health of the U.S. population continues to worsen. For many years, Dr. Stephen Bezruchka, an emergency room physician and University of Washington senior lecturer, has argued that when the wealth of a society becomes concentrated in fewer hands, larger numbers of citizens lose the ability to access the resources essential to their well-being. This leads to higher stress levels which, in turn, increase the risk of heart disease, back pain, mental illness, and other diseases. …As if that wasn't bad enough, a movement is underway in the U.S. to do away with pension programs altogether. In the public sector, Republicans in the White House and in state governments like California have plans to privatize pension systems such as Social Security and the California Public Employees' Retirement System (CalPERS). Success in any of these arenas will result in a windfall for the financial industry worth billions of dollars, while retirees will wind up with fewer benefits and more meager payouts. Meanwhile, in the private sector a federal bankruptcy judge recently gave permission to United Airlines to default on its pension obligations to company employees. The decision will likely pave the way for similar actions in the airline industry and other corporate sectors. While some may argue that inequality is an inevitable part of life, those who expound this point of view frequently tend to discount the effects of income inequality in their own lives. For example, Bezruchka points to the fact that in 1960, when the income gap between rich and poor was smaller, the U.S. ranked 13th in the world in life expectancy. Then in 1997 the U.S. fell to 25th. This development did not go unnoticed in international circles. In a press release issued in 2000 Dr. Christopher Murray, director of the World Health Organization's (WHO) Global Programme on Evidence for Health Policy remarked that: "Basically, you die earlier and spend more time disabled if you're an American rather than a member of most other advanced countries."
The big questions remain. Will the United States expand its war in the Near East? If so, will China continue to pay for it? Or can the ruling class in the United States purge itself of the madness by impeaching Bush and Cheney and imprisoning the Neocons? The questions are more political than economic but the answers to our questions about the economy are dependent on the answers to the political questions.