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Title: Blog by Novelist William S. Frankl, MD

Archive for April, 2012

The Truth About Oil Prices. Whose Fault Is It?

Tuesday, April 10th, 2012

The following is a fascinating article by David P. Goldman. He  writes the “Spengler” column for Asia Times Online, and contributes frequently to The Tablet, First Things, and other publications. He was global head of debt research for Bank of America (2002-2005), global head of credit strategy for Credit Suisse (1998-2002), and also held senior positions at Bear Stearns and Cantor Fitzgerald. Goldman was a senior editor at First Things 2009-2011, and a Forbes magazine columnist from 1994-2001. His book How Civilizations Die (and why Islam is Dying, Too) appeared in September 2011.

Short Supply, Not Middle East Tensions, Push up Oil Prices
by David P. Goldman
April 6, 2012 at 4:30 am

http://www.gatestoneinstitute.org/2995/oil-supply-prices

“Right now the key thing that is driving higher gas prices is actually the world’s oil markets and uncertainty about what’s going on in Iran and the Middle East, and that’s adding a $20 or $30 premium to oil prices,” President Obama said March 23. It’s complete and utter nonsense. Oil is trading in lockstep with expectations for economic growth, as reflected in stock prices. There’s not a shred of evidence that geopolitical uncertainty has added a penny to the oil price. Obama’s $20 to $30 per barrel risk premium is a number pulled out of a hat, without a shred of empirical support. In effect, the President is blaming Israel for high oil prices.

On April, 3, Vice-President Biden blamed higher oil prices on “talk about war with Iran”; fear that Iran might “take out the Saudi oil fields and Bahraini oil fields”; the Arab Spring movement; “war in Libya”; the rise of the Muslim Brotherhood; and a potential for unforeseen political unrest, such as “chaos in Russia.” It’s all complete and utter nonsense. Oil prices are going up because the world economy is consuming more oil and supply has not increased to meet the demand  in part because the Obama administration discourages North American energy development, most recently by stopping the proposed Keystone pipeline from Canada. It’s easier to blame foreign phantoms for high gas prices at the pump than the administration’s business-killing politics

One might argue that the market should price strategic risk into the oil price, but the fact is that markets are not especially good at assigning prices to possible events whose probability can’t be measured.

During the past three years, oil prices have tracked equity prices almost perfectly, with a regression coefficient of nearly 90%. (For statisticians, the correlation of daily percentage changes in the two markets is 51%). Equity prices embody expectations of future economic growth, and higher growth means more demand for oil. If oil supply cannot keep up with demand because the Obama administration has restricted development, among other factors the oil price goes up.
If it walks like a duck, flies like a duck, quacks like a duck and correlates in first differences, we can say with confidence that it is a duck. The price of oil tracks economic growth expectations. Growth expectations, moreover, provide such a complete explanation of oil prices that it is statistically absurd to seek for another reason.

There are even stronger grounds to reject Obama’s unsubstantiated, self-serving claims about a supposed risk premium in the oil price. Oil price risk is traded every day, in the form of options on the oil price. A hedger or speculator can buy the right to purchase oil at a fixed price over a specified time period. The price of oil options expresses the market’s perception of risk of a big move in the cost of oil.

Traders express option prices in terms of “implied volatility,” that is, the probability of a big move the more likely the price is to move, the costlier the option. An implied volatility of 20% for a 12-month option, for example, means the market assigns a probability of about two-thirds that the price will move by 20% in either direction.

The cost of hedging against changes in the oil price tracks the cost of hedging the S&P 500 just as closely as oil prices track stock prices. What’s more, the cost of hedging against an oil price spike is trading at a three-year low.

The problem is not risk, but supply. When demand increases, prices trend to rise faster than demand, because supply is relative inelastic (it can’t quickly expand to meet additional consumption). The only way to reduce gas prices is to drill for more oil.

Thus, once more Obama blames problems at home and abroad to others. But not his failure to act responsibly by opening up all the sources of oil in North America. Admittedly, this would not immediately cause oil prices to fall. But it would send a message that new sources of oil production were being tapped which might cause oil futures to slowly fall and with them gasoline prices.

The Road to a Totalitarian Future

Sunday, April 8th, 2012

“April is the cruelest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain . . . .”

These are the opening words of T. S. Eliot in his remarkable poem, “The Waste Land.” These words can be interpreted perhaps as bringing oneself to life after being numbed into almost non-existence. Well, this is kind of the way I felt about being a numbed observer of the Republican presidential primary suddenly thrown into the world of the harsh and mean, but meaningful politics of the President of the United States, Barack Hussein Obama and his administration–––an administration that clearly sees the executive branch of the United States government as dominant in relation to the Congress and the Supreme Court. Obama seems to a launched a campaign against the four C’s ––– the Constitution, Congress, the Courts, and Capitalism.

On April 2, 2012, Obama made some pointed remarks in a Rose Garden Ceremony during a news conference with Mexican President Calderon and Canadian Prime Minister Harper.

To answer a question about an impending loss in the Obamacare case before the Supreme Court, President Obama said, “I’m confident that the Supreme Court will not take what would be an unprecedented, extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress.” He seemed to claim that if the law were struck down as unconstitutional, that would be “judicial activism” because the bill  was “passed by a strong majority of a democratically elected Congress.” (clearly false––– the law barely passed both houses of Congress without a single Republican vote).

Obama seemed to say that when a law is enacted by Democrats only, it can’t be unconstitutional. This statement that Obamacare was passed by a strong majority of the Congress demonstrated a calculated lie or a descent into some kind of self-delusion.

In fact, it appeared that Obama believed that the decision on the constitutionality of Obamacare was HIS and that the Supreme Court’s function was merely to affirm the constitutionality of laws designed by the Executive and passed by the Legislative branches of government.

Perhaps Obama was trying to intimidate the Supreme Court or generate a political backlash that  would help his re-election. However, he might really believe the constitutionality of legislation passed by a Democratically controlled Congress was unassailable because it addressed a “human element.”

So, Obamacare has moved out of the arena of political debate, and into the area of fundamental constitutional principles. Thus he exposes himself as not only an ideologue, but as delusional that there are no constitutional limits on his power.

Now I wish to present a copy of a remarkable document release by the Republican Attorneys General Association concerning the Obama administration’s violation of law over the past 3 1/2 years.

The Republican Attorneys General Association

A Report on Obama Administration Violations of Law

From:  Attorneys General Tom Horne, Arizona; Pam Bondi, Florida; Sam Olens, Georgia; Bill Schuette, Michigan; Scott Pruitt, Oklahoma; Marty Jackley, South Dakota; Alan Wilson, South Carolina; Greg Abbott, Texas; Ken Cuccinelli, Virginia
Date: March 5, 2012

Introduction

As chief legal officers of the states and commonwealths, attorneys general are the last line of defense against an increasingly overreaching federal government.  Attorneys general have a duty to uphold the laws of their respective states and uphold the U.S. and state constitutions.

One of the ways in which attorneys general protect the integrity of state laws and constitutions is by carefully reviewing the actions of the federal government and responding when they break the law or overstep the bounds of the Constitution.

Federalism is the division of authority between the federal and state governments that the Founding Fathers created to provide a check on federal power so that the federal government would not become destructive of the very liberty it was instituted to protect.

While some naïvely argue that the Constitution should “evolve” due to the fact that our Founders could not have foreseen the issues faced by our country today, they forget that the Founders faced tyranny firsthand and understood it well.  This led to the creation of a Constitution that relies on limited government, precisely to protect our citizens from today’s unprecedented overstepping of the “division of authority.”

The Landscape

While each Attorney General has policy disagreements with the Obama Administration, those disagreements are not what serve as the basis for this effort.  For example, this Administration makes many decisions and takes numerous actions that Republican attorneys general find politically ignorant or flawed from a policy standpoint.  However, that does not make those decisions or actions illegal.  The purpose of this report is to outline actions taken by this Administration that are violations of law.

The obvious example is a federal health care overhaul, passed against the will of the majority of Americans and more importantly in violation of the Constitution, which is now being challenged by more than half of the states.

While the Patient Protection and Affordable Care Act (PPACA) has received the most attention, it serves as a representation of a much larger picture that demonstrates the continued disdain for the Constitution and laws shown by the Obama Administration.

Through the collective review by a committee of Attorneys General from nine of the 50 states, the group identified more than 21 illegal actions from this Administration and is highlighting the effects of the federal overreach on our citizens and states.

The Impact

Whether it is through the EPA, NLRB, Office of Surface Mining, FCC or other entities, the Obama Administration has aggressively used administrative agencies to implement policy objectives that cannot gain congressional approval and are outside of the law.

In Florida, a state with one of the most aggressive and innovative water quality protection programs in the country, the EPA chose to impose its own costly, unprecedented and unscientific numeric nutrient criteria.  The estimated impact the EPA’s rules would impose was dramatic, including billions of dollars in compliance costs, significant spikes in utility bills and the loss of thousands of jobs.  The Florida Attorney General’s Office sued the EPA and two weeks ago prevailed when a federal judge in Tallahassee threw out the costliest of the EPA’s rules, the one governing Florida’s streams and rivers.  In doing so, the judge found the EPA’s rules were not based on sound science and that the agency had failed to prove that its rule would prevent any harm to the environment – in other words, the EPA was found to have violated the law.

In South Carolina, the NLRB’s recess-appointed, unconfirmed general counsel threatened to sue the state for guaranteeing a secret ballot in union elections, despite 83 percent of South Carolinians voting for an amendment for such action.  When South Carolina was joined by three other states in mounting a vigorous defense, the NLRB backed down but turned their attention to Boeing, a private company and corporate citizen of South Carolina, telling the employer where they could or could not locate facilities.  Again – after a high-profile fight – the NLRB backed down in their complaint against Boeing, but only after the company and the union worked through an agreement.

In Arizona, voters passed a referendum requiring that individuals registering to vote show evidence that they are citizens.  Over 90 percent of the population can satisfy this simply by writing down a driver’s license number or naturalization number.  The less than 10 percent of those who do not have these numbers are able to register by mailing a copy of a birth certificate, passport, Indian registration number or similar documentation.  The Obama Administration argued against Arizona in the Ninth Circuit and a decision is yet to be made.

In Oklahoma, the EPA illegally usurped Oklahoma’s authority in the Clean Air Act to determine the state’s own plan for addressing sources of emissions by imposing a federal implementation plan.  The federal plan goes beyond the authority granted to the EPA in the Clean Air Act and will result in a $2 billion cost to install technology needed to complete the EPA plan and a permanent increase of 15-20 percent in the cost of electricity.  The Obama Administration is fighting Oklahoma’s appeal, which was filed in  the Tenth Circuit Court of Appeals.

The ongoing fight over the individual mandate and these four state examples serve as only a representation of the more than 21 Obama Administration violations that attorneys general are fighting against.

Taking Action

What these nine Attorneys General have collectively confirmed is that this Administration repeatedly shows disdain for states, federal laws it finds inconvenient, the Constitution and the courts.

With the release of this report, and its extensive list of transgressions, two principles are abundantly clear:

This group of nine Attorneys General will grow and continue to serve as a de facto “task force,” assisting when possible to defend state laws and identifying “best practices” and legal arguments to fight back against the Obama Administration’s illegalities in a more cohesive and effective manner;
The next election is critically important and as the states’ chief legal officers, the attorneys general will make a concerted effort to educate their states’ voters on the impacts that the Obama Administration’s legal violations have on their every day lives.

Regardless of party, when Washington politicians fail to adhere to the Constitution and the rule of law, state attorneys general become the last line of defense against an overreaching federal government.

List of Violations

FCC: Regulation of the Internet in the face of a court order from Circuit Court of Appeals for Washington D.C. stating that the FCC does not have the power to regulate the Internet
PPACA: Individual Mandate; To be heard by Supreme Court of the United States in March
EPA 1: GHG lawsuit; EPA’s own Inspector General reported last September that EPA failed to comply with its own data standards; Heard in Circuit Court of Appeals for Washington D.C. in February
OSM: Attempting to impose regulatory requirements on the 19 states with authority for exclusive regulation of their coalmines for the first time in more than 30 years
NLRB: Boeing; Engaged in unprecedented behavior as described by former Chairmen under both Presidents Bush (43) and Clinton; behavior is best exemplified in South Carolina where the Board tried to muzzle over 80 percent of state voters who supported a secret ballot amendment to the South Carolina Constitution and attempted unsuccessfully to tell an employer in the state where they can and cannot base manufacturing facilities
EPA: Florida Water; EPA’s numeric nutrient criteria pre-empted Florida standards; U.S. District Judge upheld the state’s site-specific alternative criteria for streams and rivers
EPA: Texas Air; TX filed lawsuit challenging Cross-State Air Pollution Rules; application rule to TX was particularly dubious because state was included in the regulation at the last minute and without an opportunity to respond to the proposed regulation; regulation was based on a dubious claim that air pollution from TX affected a single air-quality monitor in Granite City, Illinois more than 500 miles and three states away from Texas
EPA: Oklahoma Air; EPA illegally usurped Oklahoma’s authority in the Clean Air Act to determine the state’s own plan for addressing sources of emissions that affect visibility, by imposing a federal implementation plan; Federal plan goes beyond the authority granted to the EPA in the Clean Air Act and will result in $2 billion in cost to install technology needed to complete the EPA plan, and a permanent increase of 15-20 percent in the cost of electricity; Obama Administration is fighting Oklahoma’s appeal, which was filed in the 10th Circuit Court of Appeals
HHS: Religious Liberty; HHS mandated religious entities such as Catholic, Baptist and Jewish schools and churches be required to provided medical services they find unconscionable to their employees; President attempted to compromise with an “accommodation” in name only that required insurance companies to provide the services for free to the religious organization employees; Accommodation made matters worse as many religious-base hospitals and schools are self-insurers; Seven Attorneys General filed suit to protect religious liberty and oppose the HHS mandate
DOJ: South Carolina & Voting Rights Act: Rejecting voter ID statutes that are similar to those already approved by the Supreme Court of the United States; DOJ ignored section 8 of the Voting Rights Act which calls for protections against voter fraud, and used section 5 to administratively block measures to protect the integrity of elections passed by state legislatures in preclearance states including South Carolina; South Carolina voter ID law merely requires a voter to show photo identification in order to vote or to complete an affidavit at the pain of perjury if the voter does not have a photo ID
DOJ: Arizona & Voting Rights Act: Rejecting voter ID statutes that are similar to those already approved by the Supreme Court of the United States
DOJ: Arizona Immigration; In violation of 10th Amendment, federal government to sue to prevent AZ from using reasonable measures to discourage illegal immigration within Arizona’s borders; Affects Arizona because state has a large percentage, compared to other states, of illegal immigrants and need to be able to act to reduce the number
DOJ: Alabama Immigration; The DOJ challenged Alabama’s immigration reform laws after parts were “green lighted” by a federal judge; DOJ appealed the ruling; parts of the AL case have been struck down in various federal courts; specific provisions of the law include collection of the immigration status of public school students, businesses must use E-Verify, prohibition of illegal immigrants receiving public benefits; the provision requiring immigrants to always carry alien registration cards; allowance of lawsuits by state citizens who do not believe public officials are enforcing the law
DOJ: South Carolina Immigration; DOJ challenged South Carolina’s immigration reform laws that are very similar to the AZ which is scheduled to appear before the United States Supreme Court; SC case will be heard by the 4th Circuit soon there after as the 4th Circuit granted SC motion to extend the filing time until after the US Supreme Court issues an Opinion in AZ
Congressional: “Recess” appointments to NLRB (three) and CFPB (one)
EEOC: Hosanna Tabor (MI); Sought to reinstate a minister who was discharged for her disagreement with the religious doctrine of the church
DOE: Yucca Mountain; In 2009, Administration arbitrarily broke federal law and derailed the most studied energy project in American history when DOE announced intent to withdraw 8,000 page Yucca Mountain licensing application with prejudice; SC and Washington State filed suit, as a result, contesting the unconstitutional action; American people have paid more than $31 billion (including interest) through percentages of electric rate fees towards the project and taxpayers have footed an addition $200 million in legal feeds and over $2 billion in judgments against the DOE for breaking contracts associated with Yucca Mountain
DOI: Glendale Casino (AZ); Glendale is a violation because the Federal Government is forcing a family-oriented town, Glendale, to become another Las Vegas against its will.  Essentially, the Federal Government has granted ‘reservation status’ to a 54-acre plot in the same town, where the Tohono O’odham Nation plans to build a resort and casino.

All of these and more are deeply disturbing. Our nation seems to be descending into a governmental structure in which the rule of law no longer resides in the Constitution and in the Courts, but in an ever-growing authoritarian executive branch.
We MUST act! We MUST return the White House and the Congress to a Republican Party that will reverse the terrible downhill course we are on. We MUST set aside minor differences within the party and focus all our efforts to winning in November!


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