Will the College Bubble Wreck America? The Great Student Loan Debt Default

Whiskey & Gunpowder
by Mac Slavo
March 28, 2012

The Great Student Loan Debt Default

Like the housing bubble, which was predicated on easy money and rising prices, student loan lending has increased to unprecedented levels over the last decade.
There is some $1 Trillion in outstanding student loan debt in the United States, the majority of it borrowed by individuals who were sold the idea that they could go to college, party with their buddies at fraternity and sorority houses for four years, get a piece of paper that says they've received higher education, and then land a job paying $100,000 a year right out of school.
Somewhere along the way, however, things changed. When these highly educated young adults finally received their degrees, it turned out that all of those hundred thousand dollar jobs they were promised were either exported to countries where laborers are paid a fraction of the cost to do the same work, or they simply evaporated as demand for goods and services in America and around the world collapsed.
With no jobs, no way to pay for their own livings expenses, and a mountain of debt an alarming 85% of 2011 college graduates were forced to move back in with mom and dad after they got out of school.
Now, though full-blown economic recovery is touted as being just around the corner, millions of debt laden graduates are still finding it difficult, if not impossible, to find any meaningful labor, especially the kind of labor that would make it possible for them to pay off those expensive loans.
In September of 2011 college loan default rates had approached 15%. Six months later, things have gotten much, much worse. According to the Federal Reserve, those rates are rising and fully 27% of all outstanding college loans are now 30 days or more past due:

"In other words at least $270 billion in student loans are no longer current. That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable.
"It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.
"From Fitch:

"‘Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

"Why is the bubble starting to pop now?

"‘Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure for these demographics, but it is likely having a negative impact.
"Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.
Source: Zero Hedge

One in four college graduates can't make good on their student loans. These are massive numbers, folks.
Those default rates have nowhere to go but up – and yes, we're going to refer to them as ‘default rates', because even though the borrowers have yet to technically default, the odds of those back payments ever being made are virtually nil. There are simply no jobs out there for college graduates, as evidenced by the 46% unemployment rate among that age group.
In October of 2010 we warned of the popping of the college loan bubble:

"For college grads, it gets even worse. Not only can they not find a job, but they are putting financial pressure on their parents, who will now have to continue providing a home, food, and utilities until such time that their boomerang kid can get some meaningful work and contribute financially to the household. On top of that, they are debt laden with an average debt of over $23,000 once they graduate college. Considering that up until the recession, the average graduate made just $30,000 per year in an entry level position, and the fact that those types of jobs are now few and far between, we can see the potential for a new round of debt-defaults in the near future.
"Can anyone say College Loan and Education Bubble?
"The theory of ‘biflation,' one that we have presented to our readers in the past, suggests that there is a possibility of price deflation in debt based assets such as homes, and price inflation in essential goods such as food and energy. We'd mark college education as a debt-based asset, because these days most students depend on loans to pay costly tuition fees.This, like home prices, is simply not sustainable.The very same bubble that was created by easy Fed lending policies has led to a similar situation in college education. As credit became loose, and everyone with a pulse applied for a college loan and got one, the price of college education rose sharply".

It's safe to say that we are now seeing the college education bubble collapse right before our eyes.
That $270 billion is only the beginning. Remember, there are simply no jobs out there to offset these loans, so we can fully expect that the majority of these college loans will never be repaid (at least not by those who borrowed the money). The borrowers simply have no means of repaying them.
This is yet another too-big-to-fail that will end up coming out of the pockets of the US taxpayer.
Regards,
Mac Slavo
SHTFplan.com

Paul Ryan's Budget Wipes Out Most Government Agencies, Leaves Tens of Millions Uninsured

Paul Ryan’s Budget Wipes Out Most Government Agencies, Leaves Tens of Millions Uninsured: 
 House Budget Committee Chairman Paul Ryan this week came up with a budget proposal that would give the very wealthy and big businesses trillions of dollars in tax cuts and subsidies but slash funding for programs that benefit the poor, the disabled, children, and the middle class. Ryan’s Path to Prosperity (for his campaign donors) would reduce revenues by $4.6 trillion through a series of tax cuts, including reducing the corporate rate from 35 percent to 25 percent and exempting corporations’ foreign profits from U.S. tax. That’s on top of the $5.4 trillion in revenue lost from making the Bush tax cuts permanent. As Ryan wants to give away free money to the super rich and increase defense spending by $228 billion over the next 10 years, he chooses to pay for it by cutting services and programs most Americans rely on. Under his plan, non-defense federal spending would be reduced to less than 4 percent of the gross domestic production, down from 12.5 percent in 2011.  Most of the federal government  except Social Security, health care, and defense would disappear by 2050, according to new analysis by the Center on Budget and Policy Priorities.
“That includes everything from veterans’ programs to medical and scientific research, highways, education, nearly all programs for low-income families and individuals other than Medicaid, national parks, border patrols, protection of food safety and the water supply, law enforcement and the like,” the CBPP said.

Take transportation cuts, for example. Ryan’s spending on transportation would be 26.1 percent lower in 2014 than it is today. If that cut was applied to air-traffic control programs, Third Way estimates that there would be 3,092 more flight cancellations and 68,683 delays a year. That would strand 151,503 more people at the gate and make 3.3 million more people late every year. Ryan’s plan would allocate $78 billion a year for infrastructure repairs and upgrades, a lot less than the $200-262 billion suggested by think thanks that have analyzed the nation’s crumbling infrastructure. According to the Government Accountability Office, one in four bridges in the U.S. is “either structurally deficient and in need of repair, or functionally obsolete and is not adequate for today's traffic.”

Ryan’s budget also targets the country’s most vulnerable – the poor and disabled. His plan would repeal the Affordable Health Care Act, which – when the law goes into full effect in 2014 – helps 32 million Americans afford health care who do not get it today. If the law is repealed, insurers can once again deny coverage to 17 million children with pre-existing conditions who are now insured because of the law. That’s not all the damage Ryan’s plan would do. By 2050, his budget would cut 75 percent of spending from current levels on Medicaid, the Children’s Health Insurance Program and subsidies for private insurance. This would directly affect the disabled and elderly who need help paying for nursing home care, for example. His plan would also turn over Medicaid to states, causing tens of millions of people to lose coverage. A similar proposal Ryan came up with last year would worsen the problem of the uninsured and lead states to drop 14-27 million people, according an estimate by the Urban Institute. Besides ending Medicaid as we know it, Ryan, just like last year, wants to turn Medicare into a voucher program that would eventually result in seniors paying as much as two thirds of their medical costs out of their own pockets.

And for federal employees – while their agencies are still in operation  – the Ryan budget proposes an unprecedented $368 billion in federal workforce cuts, including extending the current pay freeze for three more years, cutting federal pensions by $78 billion, and eliminating 10 percent of the federal workforce from agencies like the Social Security Administration and Environmental Protection Agency by 2015.

The House Budget Committee this week voted to advance Ryan’s budget with two right-wing lawmakers voting against it because it doesn’t cause enough damage. Ryan’s plan will now go before the full House for a vote.

AFGE Secures Over 100 Signatures for Panetta Letter: As of March 20, AFGE leaders and activists have garnered support from 114 House lawmakers to sign on to a letter that will be sent to Defense Secretary Leon Panetta asking him to lift the ill-conceived cap on the civilian workforce that forces managers to cut tens of thousands of federal jobs. The letter, sponsored by Rep. Maurice Hinchey from New York, points out how DoD’s so-called “Efficiency Initiative” caps the number of civilian employees at the 2010 levels and incentivizes managers to use contractors instead of civilian employees, even though privatization is more expensive or violates the law. The letter asks Panetta to manage the workforces – military, civilian, and contractors – from the total force perspective so sourcing decisions are based on the law, cost, policy and risk instead of arbitrary constraints. The letter also asks DoD to comply with the law that would reduce spending on service contracts to FY10 levels, thus making it much more difficult to substitute contractors for federal employees.      
The Senate version of the letter will be circulated.
AFGE Praises Office of Special Counsel for Protecting Whistleblowers: AFGE applauded the recent actions by the U.S. Office of Special Counsel (OSC) in its investigation that uncovered retaliation against whistleblowers at the Department of the Air Force facilities in Dover, Del. Four employees, including AFGE members, alerted management officials to the “improper handling, processing and transport of human remains of deceased personnel and military dependents” and were retaliated against for doing so. OSC recommended disciplinary action be taken against the supervisors responsible for violations of the law that protect federal employees who engage in whistleblowing or other protected activities.
“The courage, dedication and resolve of federal employees are remarkable. Even in the face of reprisal and retaliation by management officials, our civil servants did what was necessary to shed light on acts of misconduct occurring at their facility,” said AFGE President John Gage.
“OSC has come a long way since the days of Scott Bloch,” said AFGE Assistant General Counsel of Legislation J. Ward Morrow. “Under the leadership of Special Counsel Carolyn Lerner, the agency has made it a priority to protect the rights of whistleblowers. It’s important that we expand whistleblower protections in the federal sector to ensure that employees at any agency know they will be protected when revealing unjust and unlawful acts.”
Bill Introduced to Cap Contractor Compensation at $400,000: A bipartisan group of senators have introduced legislation that would sharply lower the compensation that all federal contractors can charge taxpayers. The Commonsense Contractor Compensation Act, S. 2198, would cap the reimbursement rate at the president’s salary, currently $400,000, and apply it to all contractor employees. Lowering the cap would not limit how much these contractor employees can earn, only how much of their compensation can be charged to the taxpayers. AFGE for years has been calling attention to runaway contractor payments. Government contractors in non-DoD agencies currently can charge taxpayers $693,951 a year for each of their five most highly paid executives, a benchmark that has more than doubled during the past 12 years. Other contractor employees are not subject to the cap and can earn far larger salaries that are subsidized by taxpayers.  In DoD, all contractor employees are held to the current ceiling of almost $700,000.  OMB is reportedly poised to raise the benchmark to $750,000.
“Current federal employees have had their own salaries frozen for two years and new employees will have to pay four times as much in retirement contributions, saving the government $75 billion. Yet nothing is being done to trim out-of-control contractor spending,” AFGE President John Gage said. “Taxpayers should not be on the hook for these outrageous salaries that no one in government earns – not federal employees, not members of Congress and not even the President of the United States.”
The bill was introduced by Sens. Barbara Boxer of California and Charles Grassley of Iowa. A similar bill introduced in the House by Rep. Paul Tonko of New York would lower the cap to $200,000 and apply it to all contractors.
McCaskill Declares She Will Not Support BRAC: Sen. Claire McCaskill, chairman of the Senate Armed Services Readiness and Management Support subcommiteee, announced Wednesday that she will not allow another round of base realignment and closure commission (BRAC) proposed by the administration.
“I will not support the request for a BRAC process to be carried out in 2013,” McCaskill said during a hearing before her subcommittee on the plan. “The impact BRAC has on our communities around the country, such as those surrounding my home state bases Fort Leonard Wood and Whiteman Air Force Base, is extraordinary. I will not support a process that is callous or casual, or one that is rushed before we fully comprehend whether the traumatic task is clearly in the best interests of the American taxpayer and our national security.”
AFGE Participates in Selma March Anniversary: Forty-seven years after the 1965 Selma March that fought for voting rights and equality, civil rights leaders, labor activists and minorities re-convened to participate in the anniversary of the historic march. Led by Reverend Al Sharpton, thousands of activists including AFGE leaders marched to rally against new voting laws passed in several states and anti-immigration laws passed in Alabama. AFGE National Secretary Treasurer J. David Cox, National Vice President for District 5 Everette Kelley and National Vice President for District 12 Eugene Hudson were just a few AFGE representatives who participated in the historic march.
Voter protection continues to be at risk and AFGE is dedicated to preserving the rights of American voters. Different states have different laws on what proper identification is needed at the polls. It varies from something simple as a signature verification to bringing in an utility bill. For information on what your state requires, up-to-date local news that may affect you, and polling locations visit www.electionprotection.com or call 1-800-OUR-VOTE (687-8683).

This Week in Labor History: On March 25, 1911, 146 workers were killed in a fire at New York’s Triangle Shirtwaist Factory, a disaster that would launch a national movement for safer working conditions.
So You Think You Can Dance? This two-year-old boy thinks he can.

Inside Government: Tune in now to AFGE’s "Inside Government" to learn about the union’s fight against privatization. The show, which originally aired on Friday, March 16, is now available on demand. AFGE Council of Prison Locals President Dale Deshotel and AFGE Transportation Security Administration Local 1120 Montana Vice President Eric Wood detailed the challenges privatization efforts present to federal workers. Deshotel also discussed funding and staffing issues at the Bureau of Prisons while Wood addressed the union’s work to negotiate a contract for Transportation Security Officers. But first, Food & Water Watch Senior Lobbyist Tony Corbo continued last week’s discussion about ongoing concerns with the USDA’s Food Safety and Inspection Service proposal to partially privatize poultry inspections. Lastly, AFGE Department of Defense Local 2142 President Joe Gonzales discussed his local’s efforts to improve workplace conditions and employee morale.
Listen LIVE on Fridays at 10 a.m. on 1500 AM WFED in the D.C. area or online at www.federalnewsradio.com.

---

American Federation of Government Employees, AFL-CIO 80 F Street, N.W., Washington, D.C. 20001 | Tel. (202) 737-8700 | Fax (202) 639-6492 | www.afge.org

House Republicans released their budget, known as The Ryan Plan. And it is a disaster for the middle class !

Just this morning, House Republicans released their budget, known as The Ryan Plan. And it is a disaster.

Named after House Budget Committee Chairman Paul Ryan, the GOP's "1%-First" budget attacks the federal workforce with cuts to pensions, pay freezes, and job cuts. In fact, it targets the entire middle class: It would destroy Medicare as we know it, ship jobs overseas, and force the Department of Veterans Affairs, the Department of Homeland Security, and other agencies to slash the services that families rely on... all in order to provide tax cuts for the wealthy and corporations.

Now here's the good news: Some pundits are already declaring this budget a major political error for the GOP. They're right. Americans hated last year's budget, and they'll hate this far more radical and anti-middle class sequel that much more. But it's up to us to prove it before the House marches forward.

Phones ringing off the hook will show the House GOP that the backlash has already started – can you help? Call your Representative at 1-866-220-0044 right now and tell them you reject the GOP budget.

Don't stay silent if you've got a Democratic representative, either. The big-bailout banks and deep-pocket donors on Wall Street will be twisting arms. Every single member of Congress needs to hear from you. Here's how:

* Call the Congressional Switchboard at 1-866-220-0044.
* Ask for your Representative in the House.
* Tell the staffer who answers that the Ryan Plan is budget anarchy that doesn't represent your values as an American and, as a constituent, you won't support anyone who votes for it.

The Ryan Budget proposes an unprecedented $368 billion in federal workforce cuts, including extending the current pay freeze for three more years, cutting federal pensions by $78 billion, and eliminating 10% of the federal workforce from agencies like the Social Security Administration and Environmental Protection Agency. And it will make the wealthy even more so by eliminating the Alternative Minimum Tax and lowering the corporate tax rate to 25% from 35%, half that of Reagan-era rates.

This budget is not who we are as a country. It's bad politics and even worse government. Americans care about our veterans, our children, and our elderly. We want our food and water to be clean, and our communities safe. The Ryan Plan ignores all of these values in order to deliver 10% tax breaks to the Wall Street millionaires and billionaires who line the pockets of Republican leaders.

It was only released today, so there's no better time to make sure your voice is heard. We've had some important victories this year, but this may turn out to be the most important fight yet.

In solidarity,

John Gage
AFGE National President

P.S. If you call and the phone lines are busy, call back. If you get this when your representative's office has already closed for the day, leave a message – then call back the next morning. This is the moment to pour the pressure on.

For the latest updates on your pension, pay, budget cuts, and other news, text "NoCuts" on your personal phone to 225-568 or sign up online.
URGENT: GOP Budget Released Today

Cuts in pension, pay, jobs proposed in order to lower taxes for corporations and the wealthy. Call Your Representative NOW: 1-866-220-0044

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If history doesn’t repeat, but rather rhymes, as Mark Twain said... then we recognize some doggerel this morning in the latest news from the Persian Gulf.

“Iran has been systematically plundering large amounts of oil from southern Iraq for years,” according to a UPI story that cites a report from Stratfor, the U.S.-based private intelligence outfit.

Through a “complex oil smuggling network,” the Islamic Republic is able to pull in $20 million per day in oil revenue that short-circuits Western sanctions, the report claims.

If there’s something about this that sounds familiar, recall one of Saddam Hussein’s justifications for Iraq’s invasion of Kuwait in 1990 was Kuwait was stealing Iraq’s oil. The Kuwaitis, he said, resorted to “slant drilling,” whereby its wells entered the earth on Kuwaiti territory, but crossed the border underground.

“There’s an element of Iraqi propaganda here,” observes our Byron King — who takes note of every development that hinges on his New War scenario — “but I don’t doubt that Iran is somehow sucking Iraqi oil into is pipeline system.”

“I just saw another report,” says Vancouver favorite Doug Casey, “proclaiming that Iran is likely to attack the U.S., which is about as absurd as the allegations Bush made about Iraq bombing the U.S., when he fomented that invasion.”

Hmmm... Another rhyme.

“It’s starting to look rather serious at this point,” Mr. Casey continues, “so I do think the odds favor actual fighting in the not-too-distant future. We’re dealing with criminal personalities on both sides, and criminals are basically very stupid — meaning they have an unwitting tendency to self-destruction.”

Doug’s investment guidance for this scenario is similar to his guidance for other man-made disasters: gold and silver to safeguard your wealth, gold stocks if you’re feeling speculative. “And diversify your holdings internationally. You can never tell when the government of your home country will have a psychotic break.”

Aside from spelling out a war scenario, Byron King’s New War report also presents an investment strategy to help you protect and grow your portfolio during the tumult — starting with three market moves you can make right away. Here’s where to get started.

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It's Not Too Late to Get Into This Huge 2012 Trade in Resource Stocks

By Matt Badiali, editor, S&A Resource Report Wednesday, February 8, 2012

It's not too late… but if you want to get on-board one of biggest money-making trades of 2012, you need to act soon. If you don't take action, you could miss out on 50%-100% gains this year. Over the past three months or so, my colleague Steve Sjuggerud and I have been writing about the "bad to less bad" opportunity setting up in natural resource stocks… the companies that mine things like copper, fertilizer, gold, silver, coal, and iron ore. Regular DailyWealth readers know this sector of the market is capable of experiencing huge booms and busts. Stay out of the busts, get in early on the booms, and you can easily make 50%-100% in a year with these companies. As I highlighted last month, resource stocks busted in 2011. They had enjoyed a big run higher in 2010. But when folks got scared of holding stocks and commodities last year (due to fears of the European debt crisis and the ripple effects it would have on the rest of the world), they dumped resource stocks… Major "trophy" stocks like Freeport-McMoRan (copper) and Vale (iron ore) lost 30%-50% of their values in just months. Smaller resource stocks lost even more. As Steve and I expected, resource stocks have put in a bottom… and have staged a big rally. For example, Freeport is up 26% since Steve ran this essay. While resource stocks are likely to take a short-term breather after this big surge, there's good reason to expect them to keep rising over the course of 2012. As my colleague Porter Stansberry recently noted, Europe is now printing money in order to stave off its debt crisis. The U.S. Federal Reserve has an ultra-stimulative interest rate policy in place right now. These efforts should "goose" the economy… which will drive up the prices of natural resources. That's a big tailwind for companies like Freeport. Since Freeport and its sector colleagues have climbed so much in such a short time, it's only reasonable to expect a small correction. That's just how the market works. When that correction arrives, use it as a buying opportunity… and let the coming natural resource "boom" do the rest. Good investing, Matt Badiali

Further Reading:

In addition to Freeport and Vale, Matt believes two other resource stocks are headed higher. "These are among the world's greatest 'boom and bust' sectors," he writes. And shares "have the potential to rally 50% or 100% in the coming year." Read more here: How to Risk a Little and Potentially Win A LOT in the Resource Market.

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Gingrich under fire from conservative media

by Beth Fouhy

NEW YORK — Forget the so-called liberal media. Right now Newt Gingrich's most ardent critics are conservative pundits and columnists, many of whom have launched aggressive campaigns to discredit him and trip up his run for the Republican nomination.

This crew has largely been lukewarm about Gingrich's chief rival, Mitt Romney, considering him too moderate. But their open criticism of Gingrich is evidence that for all their misgivings about the former Massachusetts governor, they see him as a much stronger contender against President Barack Obama.
To hear columnists Ann Coulter and Charles Krauthammer and the conservative media aggregator Matt Drudge tell it, Gingrich is an inconsistent conservative who didn't fully support President Ronald Reagan and whose undisciplined nature mirrored that of President Bill Clinton, who was Gingrich's Democratic adversary in the 1990s.
The conservative media hits against Gingrich have come with force just as the GOP establishment seems to be rallying around Romney in earnest, perhaps out of fear that Gingrich may end up winning the nomination.
On Thursday, Romney's campaign released a scathing open letter from the 1996 Republican presidential nominee, Bob Dole, who served as Senate Republican leader when Gingrich presided over the House. In the letter, Dole glowingly endorses Romney and repudiates Gingrich.
"If Gingrich is the nominee it will have an adverse impact on Republican candidates running for county, state, and federal offices," Dole wrote. "Hardly anyone who served with Newt in Congress has endorsed him and that fact speaks for itself. He was a one-man-band who rarely took advice. It was his way or the highway."
Jacob Heilbrunn, in the conservative-leaning magazine The National Interest, mused that Gingrich "is essentially bragging that his prime credential to become president is that he's willing to debate for hours and bring a knuckle-duster. This is evidence of his sober judgment? This is supposed to induce swing voters to back him?"
Conservative radio titan Rush Limbaugh also weighed in, seemingly to defend Gingrich from some of the attacks. But, in doing so, he also vividly outlined many of the critiques against Gingrich from other conservatives.
Conservatives "are raising questions here about Newt and his mendacity, his forthrightness — it's incredible," Limbaugh marveled on his show Thursday.
Gingrich stormed to a decisive win over Romney in the South Carolina primary last week fueled in part by two well-timed attacks on the news media. Both came during nationally televised debates, guaranteeing maximum exposure.
In a CNN debate, Gingrich pushed back at anchor John King when King questioned him about an interview Gingrich's second wife, Marianne, had given ABC News. In the interview, Marianne Gingrich suggested her husband had asked her for an open marriage so he could carry on with a mistress, Callista Bisek, now his third wife.
"I think the destructive, vicious, negative nature of much of the news media makes it harder to govern this country, harder to attract decent people to run for public office. And I am appalled that you would begin a presidential debate on a topic like that," Gingrich said. "I am tired of the elite media protecting Barack Obama by attacking Republicans."
The audience rose in a standing ovation.
Gingrich also told King that his campaign had given ABC News the names of friends who would vouch for him but that the network had rejected the offer. On Wednesday, a Gingrich spokesman acknowledged that the claim was a mistake and that the campaign had offered only Gingrich's two adult daughters to defend him.
Gingrich drew raves at another Fox News debate before the South Carolina primary when asked about his oft-stated assertion that Obama is a "food stamp president." He angrily denied the statement had anything to do with race.
Mark Jurkowitz of the Pew Center for Excellence in Journalism said Gingrich had tapped into longstanding resentment of many conservatives against mainstream news outlets.
"Running against the elite media — we've seen now for a good 30 years — certainly has resonance among Republican base voters. In conservative circles, there's been the perception that the media are tilted against them," Jurkowitz said.
Brent Bozell, founder of the conservative Media Research Center, announced Thursday that his group was set to spend $5 million on an advertising campaign to expose media bias in the 2012 election.
"You have a left-leaning media that's out of control. You've got to corral them," Bozell said in a news briefing, promising radio ads, billboards and an "unprecedented" effort in social media outlets like Twitter and Facebook.
Gingrich, for his part, promised in his South Carolina victory speech to keep up his attacks on the media. But the hits he took this week while campaigning in Florida came from other conservatives.
By Thursday, Gingrich was disparaging the Commission on Presidential Debates, suggesting he might not participate in debates the commission organizes if he becomes the Republican nominee.
"We've had enough of newsmen deciding what the topics would be," Gingrich told supporters in Jacksonville, many of whom waved "Don't Believe the Liberal Media" signs.
Later, Gingrich was asked about the attacks from conservative pundits, particularly from the American Spectator's Emmett Tyrell, who wrote that Gingrich has had "private encounters with the fair sex that doubtless will come out."
Gingrich tried to turn such criticisms to his advantage, suggesting they represent "establishment" thinking.
"Tyrrell has to write whatever Tyrrell wants to write," Gingrich said. "There's the Washington establishment sitting around in a frenzy, having coffee, lunch and cocktail hour talking about, `How do we stop Gingrich?'"
While Gingrich relishes bashing the media "elite" in public, he is friendly with the reporters who cover his campaign and makes himself available for media questions daily on the campaign trail. He seems to relish the back-and-forth with journalists, sometimes labeling questions he dislikes "bizarre."
At a campaign stop in South Carolina, he wished a reporter covering his campaign a happy birthday, and he typically stops by to chat with reporters at dinner after a day of campaigning.
___
Associated Press writers Brian Bakst in Jacksonville, Fla., and Shannon McCaffrey in Atlanta contributed to this report.
___
Follow Beth Fouhy on Twitter at http://www.twitter.com/bfouhy

Tell Congress: Only people are people. End Citizens United Supreme Court Decision

Tell Congress: Only people are people.

We deserve a country where our elected officials are not bought and paid for by big corporations.
But the Citizens United vs. FEC Supreme Court decision overturned over a century of precedent and opened the floodgates for unlimited amounts of corporate money to flow into our political system.
Shockingly, the court came to this decision based on the notion that a corporation is legally a "person" entitled to First Amendment rights, and by equating a corporation's right to spend unlimited amounts of money influencing an election with our right to free speech.
Tell your senators and member of Congress to support a constitutional amendment to overturn Citizens United and end corporate personhood.
Even before the Citizens United decision, we too often saw the interests of Main Street subverted in favor of the interests of Wall Street.
But with the Citizens United decision now the law of the land, large corporations have the power to spend unlimited amounts of money from their general treasuries to buy elections.
To put things in perspective, the roughly $745 million Barack Obama raised to run for President in the 2008 election cycle (which was the most money raised by any candidate ever to run for office in the U.S.) is dwarfed by the $45 billion in profits a single company (ExxonMobil) made in 2008.
What's more, Citizen United opened loopholes that allow corporations to hide their campaign expenditures by laundering the money through non-profit advocacy organizations.
Tell your senators and member of Congress to support a constitutional amendment to overturn Citizens United and end corporate personhood.
Unfortunately, because Congress cannot pass a law that supersedes a Supreme Court ruling, it may take a constitutional amendment to undo the worst aspects of the Citizens United decision and end corporate personhood.
Clearly, the bar to successfully amending the Constitution is very high. But with 85% of the public opposed to the Citizens United decision, there is a potential for a broad coalition of Democrats, Republicans and Independents who all want to restore our democracy.
And let's remember, the stakes are too high to allow inaction on this issue. It's no exaggeration to say that the Citizens United decision fundamentally threatens the integrity of our democracy.
We need a government of, for and by the people. And sadly, we might need to work really hard to re-establish the common sense and democratic view that only people are people, not corporations.
Your senators and member of Congress need to hear from you, regardless of where they stand on this issue. We need to show them that their constituents are part of a broad movement demanding action -- not only to convince them that overturning Citizens United is the right thing to do, but also that it's possible.
Today, take a step to be part of that movement.
Tell your senators and member of Congress to support a constitutional amendment to overturn Citizens United and end corporate personhood.

STOP SOPA (Stop Online Piracy Act) !

... or else you could find many of the sites you use on a regular basis permanently closed to you. And maybe find your sites closed to many of your regular visitors.

The Basics

SOPA (the Stop Online Piracy Act) is a bill currently in the US Congress that would allow the US Government to add sites to a blacklist, preventing anyone in the United States from accessing them. The stated goal is to limit access to pirate ("warez") sites, and sites that sell counterfeit physical products. Fake Rolexes, designer clothes, prescription drugs, etc.

The intent of the bill is something we strongly support. Piracy affects those of us in the Warrior group more than most, as a lot of us make our livings selling our own intellectual property. Our membership includes tens of thousands of authors, musicians, graphic designers, photographers, programmers, copywriters, videographers, public speakers and others, from nearly every creative field.

We feel the impact of digital thievery first hand.

This bill is not the way to handle the problem. It is a disaster in the making.

It would damage the Internet's basic security infrastructure, possibly require ISPs to monitor every site you visit, and make the operation of any website that contains user-generated content (blogs, forums, digital marketplaces, and social media sites) too risky for investors and new developers.

Wikipedia has posted a good basic summary of the potential problems. Read it. It is frightening. And you need to be scared.

How It Would Work

Here's the simple version: If the Justice Department or any copyright holder accused a site of "encouraging or facilitating" piracy, the government could order that site removed from US-based search engines and ad networks, forbid payment processors from handling transactions for them, and require ISPs to block access to those sites by their customers.

Let's consider how that might apply to this forum... There are currently over 335,000 pages on this site. If just one of those pages contained a single post promoting an illegal download, or one WSO seller has used graphics or code from a copyrighted product without permission, or we miss just one Chinese spam for counterfeit goods, we could be blocked.

Would it matter that we actively look for and delete those posts? Maybe, but only after the process had begun. And we'd probably never know about it until the block was in place.

The amount of time that it would take to correct such an unjustified blocking would cause permanent damage to any interactive site. Shifting the membership away from a destination for that long nearly guarantees the site would never recover.

Along with that, there is no requirement that payment processors re-accept a site that has been blocked this way. You know how these guys work: They don't care if the site is eventually found innocent. They'd label it as "high risk," and never deal with it again. And they'd probably start creating whole new categories to lock out, just to avoid the headaches.

"You let visitors post on your site? Sorry. We don't accept interactive services in our network."

And, unless the ISPs are working from a centralized and regularly updated database, it's unlikely most of them would ever remove the blocks once they were in place.

Mistakes would almost certainly be fatal to the target sites. We're talking about legitimate sites that provide real value for their visitors and real incomes for their operators and their families.

It is unclear at this point whether the legislation would affect sites based in the US, or if it applies only to "foreign" sites. Even if it doesn't start out applying to sites hosted in the United States, do you really think it will stay limited to "offshore sites" for long?

And how do we justify sitting by while our friends around the world are subjected to this potential for arbitrary blocking within the US?

Don't Think This Will Affect You?

Maybe you aren't involved in a market where this would seem to matter, and you're not interested in the principle of the thing. Consider a few possible examples that might make the reach of this Congressional folly clearer.

Any blogs you like? Keep in mind how many of them are hacked every day. One of the main activities for those hackers is pointing the victim sites to online shops selling illegal drugs.

*POOF*

Gone.

Hang out at any scrapbooking sites? A lot of them let the members share their original page themes and other digital scrapbooking elements. If one clueless designer uses graphics from a catalog or other copyrighted source, your fun little hobby community could be taken away from you. And the site owner could lose their income.

Use shareware or freeware? Legitimate software libraries, like CNet's, would be prime targets. After all, it only takes one mistake.

Do you surf using proxies to protect your privacy? Forget that. It's only a matter of time before that's marked as a refuge for pirates and they're blocked.

Have you ever tried to keep track of which sites are pirating your products? If you live in the US, you can forget that, too. Once they hit the blocklist, you can't see them. Which means you can't take any action to reduce the damage.

That's just the tip of the virtual iceberg.

The real damage will begin when the pirates implement new systems for distributing their warez. Evading a domain-based list is child's play for experienced people, and pirates really don't care if it's illegal. If they did, they wouldn't be pirates.

And it won't just be the traditional pirates who join in. Anyone who's studied history knows that prohibition just romanticizes the suppliers and users, and creates networks dedicated to serving that "heroic" image.

And, of course, there's the problem of retribution. If the US starts arbitrarily blocking access to foreign sites from within our country, how long do you think it will be before other countries develop similar approaches to advancing their political goals, and block their citizens from accessing sites they don't deem suitable?

At that point, it isn't even nominally about piracy any more. It's about politics, pure and simple. If you doubt the temptation, consider how quickly nations in the Middle East tried to block their citizens from accessing western social networks at the first sign of unrest over the past few years.

Think about how this would look to the world after all our comments about the Chinese "Great Firewall."

If you believe our bureaucrats would be careful enough to only list sites that existed for the sole purpose of piracy, remember: These are the same bureaucrats who listed a then-sitting US Senator (the late Edward Kennedy, of MA) on our anti-terrorist "no fly" list.

What's your recourse if someone accuses you of "encouraging or facilitating" piracy and you're found to be innocent? Good luck with that. The only way you could get any satisfaction there would be if you could prove they wilfully and knowingly made false allegations.

Ask your lawyer what the chances are of proving that. Be prepared from them to laugh and say "Zero."

This is the single most dangerous piece of legislation to regulate the Internet that has ever had any real chance of becoming law in the US.

What Can You Do?

If you live in the US, contact your Senators and Representatives and encourage them to vote against SOPA (H.R. 3621) and PIPA, the Senate version (S. 968).

When you contact them, be calm, clear, and concise. Tell them that you support the goal but oppose the legislation, because of the damage it will do to small businesses and the security of the Internet in general.

If you feel the need to cite a source for them, point them to the Wikipedia article, which lists a number of US government studies and reports that show just how much damage the legislation could do.

And be clear that you don't want to see an edited version of the bill passed. This thing is not just poorly implemented. The concept itself is flawed and dangerous.

Emails count a little. Phone calls and faxes count more. A short, clear printed letter mailed to them counts the most.

If you're contacting your representative, mention H.R. 3621 (SOPA). If it's your Senators, the bill number to mention is S. 968 (PIPA).

You can find the contact information for both Senators and Representatives at Contacting the Congress. Just select your state, type in your zip code, and click the "Submit It" button.

When contacting them, be sure to either mention your name and address to the person you speak with on the phone or include it in your correspondence. They want to know you're actually one of their constituents.

Remember to be polite, clear, and brief. These folks are trying to protect your interests. Most of them simply don't understand the potential problems the bill would create.

Calling them, or typing a brief letter and putting a stamp on it, will probably take less time than you were about to spend in this forum today. And it could make a huge difference.

If every US citizen who reads this takes that few minutes' worth of action, we can generate a ton of pressure against the bill. If we all just leave it to everyone else, we're likely to be stuck with this as law, along with all the problems it brings.

It's up to you. Choose wisely.

AFGE Week In Review January 13,2012

Jan. 13, 2012

AFGE President John Gage Responds to Obama’s Agency Consolidation Plan: AFGE National President John Gage today issued the following statement in response to President Barack Obama’s proposed consolidation of business and trade agencies:
“I welcome President Obama’s decision to reinstate the Small Business Administration’s status as a Cabinet-level agency – a position it held during the Clinton administration. This signifies the president’s confidence in Administrator Karen Mills and the thousands of hard-working federal employees who serve America’s small business owners.

AFGE represents employees at four of the trade- and commerce-related agencies and offices that I understand would be consolidated under the Obama administration’s plan. We represent 2,200 employees at SBA, nearly a hundred each at the Export-Import Bank and the Overseas Private Investment Corporation, and about two dozen at the Trade and Development Agency.

We are eager to review the details of the president’s consolidation plan and determine how it will impact the employees we represent and the services we deliver to the American people. I do take issue, however, with the notion that most of government is inefficient and that cutting federal workers will somehow solve the problem. Federal employees and supervisors are only carrying out the work that has been created by Congress and elected officials, who have mandated these various layers of bureaucracy largely for political gains.”
AFGE President John Gage Responds to Proposed 0.5% Raise: AFGE National President John Gage has issued the following statement in response to the Obama administration’s proposed 0.5% federal employee pay raise for 2013:
“After freezing federal employee’s salaries for two years, the Obama administration is proposing a miniscule half-percentage point increase in their wages next year. It’s less than half of the 1.2% nationwide adjustment employees are entitled to next year under the Federal Employees Pay Comparability Act, which was signed into law by the first President Bush in 1990. The proposal also effectively freezes locality pay for another year. The fact is, this increase is well below the rate of inflation of 3.6%, and will be wiped out by higher costs for health care, groceries and other essential needs.

“Federal employees aren’t overpaid government bureaucrats. They are the aircraft mechanics and commissary workers at local military bases, the nurses at the local VA hospital, the men and women guarding our borders and the claims representatives who process Social Security and disability benefits. Especially in these tough economic times, we must ensure that all workers are provided with fair and meaningful wage increases to prevent them from falling further behind. I urge Congress to approve a meaningful pay raise that will allow these employees to provide for their families.

“Having said that, we’re hopeful that this is a positive step that spells an end to the barrage of attacks on pay and benefits for working people and serves as an acknowledgement that attacking the jobs we have won’t create the new jobs we need.”

AFGE Urges DoD to Shift Budget-Cutting Focus to Contractors: AFGE is urging the Defense Department to take a balanced approach to spending reductions that subjects private contractors to the same cost-cutting scrutiny that has already been placed upon the civilian workforce. The Pentagon has pledged to cut $450 billion in spending during the next decade. In addition, the department may have to cut another $500 billion during the next decade to comply with a sequestration mandate. DoD has arbitrarily capped the civilian workforce at 2010 levels, which means cutting tens of thousands of civilian positions. It is also pursuing cuts in military retirement pay and other employee benefits. At the same time, defense spending on service contractors is growing at an alarming rate. The department spent $121 billion on service contracts in fiscal 2010, nearly twice as much as originally budgeted, according to an inventory of service contracts cited in a recent letter from several members of Congress on the House Appropriations Committee to the Pentagon.

“We understand that the law requires sacrifices, but it is wrong for civilian workers to shoulder the entire burden,” AFGE National President John Gage said. “Tens of thousands of civilian jobs are slated for elimination, despite strong evidence that having civilians perform these jobs is the most cost effective strategy. Meanwhile, the department continues to increase spending on contractors, even though they are more costly and less accountable. There is no budgetary or strategic rationale for excluding DoD’s vast contractor ‘shadow workforce’ from the cost-cutting measures that the military and civilian workforces are facing.”

“The main issue this country is facing is a lack of jobs. Cutting military and civilian jobs and hacking away at their benefits hurts the economy and does nothing to spur job creation,” Gage added.

Inmates Assault BOP Officers in Seattle, Coleman: AFGE’s Council of Prison Locals (CPL) today reiterated its call for more resources and manpower following two inmate assaults on officers the first week of the new year. The first incident occurred Jan. 3 at the Federal Detention Center – SeaTac in Seattle, Wash., when two inmates attacked and assaulted a correctional officer who was working alone during morning rounds. The officer, an Iraq war veteran, has been hospitalization for treatment. The FBI is investigating the incident. The assault in Seattle was followed up by another incident days later at the United States Penitentiary – Coleman in Florida where two correctional officers were assaulted by inmates inside the facility. CPL pointed to BOP’s inadequate staffing and funding levels as a major reason for the uptick in violence throughout the nation’s prison system.

“We’re outraged to learn of more assaults against staff,” said CPL President Dale Deshotel. “Sadly, these types of attacks – one where a staff member is unarmed and frequently working alone – happen far too often throughout the federal prison system. This is a safety issue and must be addressed immediately.”

BOP correctional officers and other staff members inside federal prisons are unarmed, leaving them vulnerable to attacks by inmates with homemade weapons. For years, AFGE and CPL have fought not only for additional staffing and funding at BOP but also for protective equipment such as stab-resistant vests. The need for additional resources can be seen with the countless violent outbreaks occurring at BOP facilities across the country. A correctional officer can be responsible for supervising as many as 150 inmates at once and is unarmed inside the facility. Low staffing levels and a more aggressive inmate population have led to a spike in violence – something AFGE says cannot continue.

AFGE Fights Proposed Closure of Historic Hot Springs VA Hospital: AFGE strongly objects to the proposed closing of the historic Hot Springs, South Dakota VA Medical Center. The Department of Veterans Affairs has proposed shuttering this facility, which is part of the Black Hill Health Care System, covering South Dakota, and portions of Nebraska, North Dakota, Wyoming and Montana. The dismantling of this facility would force veterans to attend other facilities in the network that are between 50 and 100 miles away or be pushed to private sector health care centers that may lack the expertise in treating veterans.

“Hot Springs is a veterans’ town and our VA facility has served America’s heroes for more than 100 years. The proposal by the agency to close the doors of this veterans’ care center, on top of its already diminished capacities, is an outrage,” said Patrick Russell, president of AFGE Local 1539. “This has become a pattern with the VA, where we are finding the agency systematically closing its in-patient care facilities, in order to solely operate outpatient clinics and be in the business of managing contracts with the private sector.  This is no way to care for our nation’s vets.”

AFGE members, the American Legion, veterans, community members and other supporters have mobilized grassroots efforts in Hot Springs to petition the agency to keep the facility open to area veterans. The historic facility has been the ideal location to treat those with post-traumatic stress disorder and other mental health conditions, given its small town atmosphere.

Obama Recess Appoints Labor Board: President Barack Obama has recess-appointed Sharon Block, Terence Flynn, and Richard Griffin to the National Labor Relations Board (NLRB), bypassing the approval of right-wing lawmakers in the Senate who would likely stall the nominations as they previously did with other nominations. The three NLRB appointees will allow the five-member board to continue on with a quorum after board member Craig Becker’s term came to an end last week. The independent labor board conducts union elections and investigates unfair labor practices.
AFL-CIO President Richard Trumka said, “We commend the President for exercising his constitutional authority to ensure that crucially important agencies protecting workers and consumers are not shut down by obstructionism.  Working families and consumers should not pay the price for political ploys that have repeatedly undercut the enforcement of rules against Wall Street abuses and the rights of working people.”
Obama’s recess appointments infuriated right-wing lawmakers despite the fact that President George W. Bush made a total of 171 recess appointments and President Obama had made only 28 recess appointments as of December 8, 2011, according to the Congressional Research Service.

Obama Taps OMB Chief to Become White House Chief of Staff: Office of Management and Budget Director Jack Lew has been tapped by President Barack Obama to become the White House chief of staff. Lew, who was Bill Clinton’s OMB chief, will replace Bill Daley, former banker and Clinton’s commerce secretary, at the end of this month.
AFGE Wins Ground Rules Agreement, Ready to Move Forward with Contract Negotiations at TSA: AFGE is one step closer to bringing home a collective bargaining agreement for 44,000 TSA officers after the union on Wednesday won an agreement with TSA on ground rules that govern the actual contract negotiations.
AFGE and TSA negotiators signed the ground rules agreement at about 5:40 p.m. on Jan. 11, paving the way for contract negotiations. This was a major step forward after TSA had been reluctant to adopt standard ground rules and practices used across the government. AFGE insisted that TSA do the right thing and our persistence paid off when management finally agreed to our proposals. For example, management originally refused to provide AFGE with advance notice of changes to work rules subject to bargaining, saying they couldn’t ensure they would always be able to do that. Other agencies, of course, readily agree to such a provision and comply without difficulty. But not TSA. After endless debate over how quickly they could provide such notice, they finally agreed to give notice “as soon as practicable.” It may seem like a small point, but it should give TSOs a sense of why TSA foot-dragging delayed the ground rules.

TSA Relents on Radiation, AFGE Proposes Joint Committee to Provide Dosimeters: After years of pressure from AFGE, TSA management finally relents and makes plans for issuing radiation dosimeters for TSA officers. Members around the country have expressed concerns for years about the level of radiation they are exposed to from screening equipment. The European Union recently banned certain types of scanners due to radiation concerns. Thanks to AFGE’s advocacy about this issue from the beginning, we will finally be able to give the officers what they really need – concrete information on the level of radiation exposure they are experiencing at work.
AFGE is also proposing a joint union-management committee to implement TSA’s new radiation monitoring program following the agency’s announcement of its plan to purchase personal and area dosimeters to be used at certain federalized airports. Specifically, TSA is seeking vendors who can provide individual and area dosimeters as part of the agency’s ongoing study to detect ionizing radiation and assess risk to employee health and safety. It will be a two-year contract worth $150,000.

“We would like to see TSA implement a comprehensive radiation safety and monitoring program to provide dosimeters to assess employee exposure over time as well as provide training and education on radiation and its possible health effects,” said AFGE President John Gage in a Jan. 11 letter to TSA Administrator John Pistole.

Application Period Now Open for AFGE’s JNS Family Scholarship: Each January, AFGE members and their dependents are eligible to apply for the John N. Sturdivant (JNS) Family Scholarship. This scholarship, administered by the Federal Employee Education and Assistance Fund (FEEA), offers twenty five awards in the amount of $2,000 each on a yearly basis. 
Applicants must be enrolled or plan to enroll in an accredited college or university in a course of study that will lead to a two-year, four-year or graduate degree and have at least a 3.0 grade point average on a 4.0 scale.  Applications are accepted from January - March of each year and completed application packages must be postmarked no later than March 30, 2012.  For other requirements and to access the JNS Family Scholarship Application Form, click here.  Please note that those attending the National Labor College will not qualify for the JNS Family Scholarship as AFGE offers a separate scholarship program for this institution.

For more information, contact Carolyn Williams at 202.639.6406 or visit the AFGE Education website at http://education.afge.org.

AFL-CIO to Host Martin Luther King Jr. Holiday Observance in Detroit: Hundreds of labor and civil right activists are expected to gather at the AFL-CIO’s annual Martin Luther King Jr. Holiday Observance and National Conference to honor Dr. King’s legacy in Detroit, Michigan on Jan. 12-16. Featured speakers and awardees include Rep. Hansen Clarke, Rep. John Conyers, national radio host Joe Madison, Sen. Debbie Stabenow, UAW Pres. Bob King, U.S Department of Labor Secretary Hilda Solis and AFL-CIO Executive Vice President Arlene Holt Baker. A series of workshops will be provided on important issues like voting rights, protecting public education, and organizing for job-creating legislation. Click here for more information.

Tweet of the Week: “Measured in dollars, fuel was America's top export in 2011. We're selling it because the price is good: an avg. $95 a barrel last year ~ WestWingReport

Brangelina Meets Obama: Angelina Jolie and Brad Pitt stopped by the White House Wednesday to chat with the president.

Inside Government: Tune in now to AFGE´s "Inside Government" for a special discussion with Americans for Democratic Action National Director Michael J. Wilson. The show, which originally aired on Friday, Dec. 30, is now available on demand. Wilson addressed the benefits of collective bargaining and cited the recent four-year labor agreement between Boeing and the International Association of Machinists and Aerospace Workers as proof that the process works.MSNBC´s Ed Schultz, host of "The Ed Show," and U.S. Rep. Karen Bass were then featured as two of the program's top interviews of 2011. Schultz discussed the need for a strong middle class and proposed ideas to get Americans back to work, while Bass shared her views on the U.S. job market and celebrated the work of public servantsnationwide.
Listen LIVE on Fridays at 10 a.m. on 1500 AM WFED in the D.C. area or online atwww.federalnewsradio.com.

Quote of the Week:

AFGE Council of Prison Locals President Dale Deshotel on the union’s repeated calls for more resources to adequately fund and staff federal prisons:
“We’re outraged to learn of more assaults against staff.  Sadly, these types of attacks – one where a staff member is unarmed and frequently working alone – happen far too often throughout the federal prison system. This is a safety issue and must be addressed immediately.”

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American Federation of Government Employees, AFL-CIO 80 F Street, N.W., Washington, D.C. 20001 | Tel. (202) 737-8700 | Fax (202) 639-6492 | www.afge.org

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Iran's Real Weapon Of Mass Destruction Is Oil Prices

     Oil prices jumped 8% last week after Iranian Vice-President Mohamad Reza Rahimi threatened to close the Strait of Hormuz if the rest of the world slapped an embargo on his country’s oil exports. Today, Reuters reports the European Union will do just that, with its diplomats agreeing in principle to halt Iranian imports.
There are lots of practical reasons to suspect Iran is bluffing. Not only would attacking shipping in the Strait be military suicide, but the regime needs the hard currency it gets from exporting 2.1 million barrels a day. Still, Iran is playing a powerful hand when it threatens to disrupt shipping through the narrow Strait and choke off what the Energy Information Administration estimates is 20% of the world’s traded crude.

Move up Move down

2012 Outlook: Crude Oil Prices Could Rise This Year, But Prices Could Be Very Volatile Kitco News Contributor

As my friend and economist Ed Hirs pointed out in a paper in 2010, the loss of 10 million barrels a day of Middle East production could drive short-run oil prices to $413 a barrel, given the inability of consumers to rapidly shift to other fuels. And that kind of shock is enough to blast the U.S. economy back into recession. Economist Kevin Kliesen with the Federal Reserve Bank of St. Louis said that sudden and sustained increases in oil prices increase the odds of recession by 50% in the first year, and 90% after three years.
“If you look at the historical data, nine of the past 10 recessions in the U.S. were preceded by sharp increases in oil prices,” Kliesen said. “If it’s large enough, it can cause people to adjust their future path of spending.”
A 50-cent increase in gasoline prices sucks $70 billion a year out of the pockets of U.S. consumers. And none less than Federal Reserve Chairman Ben Bernanke, earlier in his career, wrote that unexpected new information like jumping oil prices can cause businesses to delay capital spending, since the “option value” of waiting to see what happens next exceeds the expected return on investment.
Economists re-examining the 2008 financial meltdown are increasingly identifying the sudden, 55% jump in oil prices that preceded it as a big contributor to the subsequent decline in economic activity. Economist James D. Hamilton of the University of California at San Diego, for example, found that a model of the impact of oil prices on gross domestic product he created in 2003 predicted, with an error of less than 0.2%, the actual decline in GDP in the third quarter of 2008.
The surprising thing, Hamilton told Congress in 2009, is that oil caused so much economic damage given other problems at the time. Plunging residential investment only accounted for about half the shrinkage in GDP in the first three quarters of 2008, for example, and some of that might have been due to consumers resisting buying homes in far-flung suburbs because they were worried about the rising cost of commuting.
“Something else, in addition to the pre-existing problems in the housing sector, contributed to tipping the scales from an economic slowdown into a self-feeding dynamic of falling output and employment,” Hamilton told Congress. “I see little basis for doubting that a key aspect of that new drag on the economy resulted from the effects of the oil price shock.”
Kliesen of the St. Louis Fed also believes high oil prices had a lot more to do with the recent recession than many people think.
“It was a key event that really helped slow things down,” Kliesen told me. “Clearly we had some different shocks in that period that really hammered the economy but oil was one of those shocks that was lost in all the reporting about the financial crisis and housing downturn.”
Sudden changes in oil prices hit the capital-goods market particularly hard, Kliesen has found, since businesses simply stop investing until they get a better sense of where prices are going (that was Bernanke’s thesis, in a more general way).  Higher oil prices also drive investors to shift money toward sectors of the economy that are less affected “and such reallocation is costly,” Kliesen has written.
     
A 2000 study by the International Monetary Fund found that a $5 permanent increase in oil prices cuts world GDP growth by 0.25% over the first four years. But the impact on the U.S. was a larger 0.3%, reflecting this country’s high per-capita energy use.
According to the EIA, 14 crude tankers a day pass through the Strait of Hormuz, a 21-mile-wide passage the EIA calls “the world’s most important oil transit chokepoint.”
  

Iran's Real Weapon of Mass Destruction is Oil Prices

Oilpatch leading the tango with China: China Buying Up Canadian Resurces

 By Michael McCullough  | January 03, 2012  
     PetroChina's purchase of the 40% of the McKay River oilsands project it doesn't already own from Athabasca Oil Sands is just the latest example of China's national oil companies snapping up Canadian energy reserves. Coming after China National Offshore Oil's outright takeover of Opti Canada and Sinopec's bid for Daylight Energy in 2011, it shows the NOCs are ready to own and operate Canadian assets outright.
But the deal also gives a hint of who's really pursuing whom. It was Athabasca in this case that triggered a shotgun clause forcing PetroChina to buy its stake for $680 million (because this was part of the 2009 deal between the companies, the upsell does not require Investment Canada approval). Athabasca wanted the cash, it said, to pursue light oil opportunities—presumably with a shorter time horizon.

       "It's not just the Chinese who are eager to come in," says Wenran Jiang, a University of Alberta professor who organizes an annual Canada-China energy forum. The NOCs are being approached by lawyers and investment bankers not just from Calgary but from Houston and Melbourne too, seeking patient capital for long-timeline projects while equity prices for energy companies have been steadily sinking on stock markets despite the high price of oil. "They're swamped by these people," Jiang says.
Now that they're in the driver's seat at McKay River, it will be interesting to see how they proceed. Will they hire an all-Canadian management team or tap some of their internal expertise? One of the lingering fears about NOC investment is that companies might just sit on high-cost Canadian assets for years without developing them, as a hedge against higher energy prices.
Jiang expects the opposite. "The Chinese," he says, "are fast movers. It's the western companies that delay." He notes Sinopec's disappointment when French-based Total SA, the majority owner and operator of the Northern Lights oilsands project, pushed the in-production date there back to 2024. "That's totally frustrating to them," he says.
The Chinese are interested in our resources, no question. But the Canadian demand for patient capital is just as strong.
Astronomical Gains from a Tiny Canadian Oil Company?