Oil price spike has wide economic impact

Continued surge could spark 'something worse than a mild recession'

By John W. Schoen

Senior Producer

MSNBC

updated 6:17 p.m. ET May 22, 2008

As dire forecasts about runaway oil prices become reality, it’s impossible to know how much higher they’ll go. But the impact of the price surge already is being widely felt. And if prices go much higher, the damage to the U.S. economy will be deeper and wider than the fallout from the run-up so far.

Oil prices have doubled in the past year and have shot up nearly 50 percent since January to a record $135 a barrel. Much of the rise appears to be driven by speculators betting that tight supplies — or outright shortages — will push prices even higher.

Consumers — already hit with rising prices and flat wages — are being stretched further. As the Memorial Day weekend kicks off the summer driving season, gasoline prices are at record levels, reaching a national average above $3.83 a gallon. Some analysts predict the average will break past $4 as early as next week. In some parts of the country, prices are already closing in on $5.

“We're already in a mild recession,” said Lakshman Achuthan, an economist at the Economic Cycle Research Institute. “I think if we go towards $150 (a barrel), we start talking about something worse than a mild recession.”

The surge in oil prices is hitting some parts of the economy harder than others. Companies that use lots of oil have already been hurt; the recent surge will only make matters worse.

Airlines have been struggling to make a profit, even as they cut jobs and flights. American Airlines became the latest to announce it was tightening its belt another notch, saying Thursday that it plans to shrink capacity by as much as 12 percent and cut thousands of jobs.

To offset the rapid rise in jet fuel prices, the airline also said it plans to start charging passengers $15 to check the first bag of luggage for each passenger. United Airlines said it’s considering a similar move. The carriers already charge $25 for a second bag.

“(Higher oil prices are) going to send some smaller airlines into bankruptcy," said Nick van den Brul, an airline analyst at the French investment bank, Exane BNP.

Surging gasoline prices are further dampening sales at U.S. carmakers, whose product lines are more heavily oriented toward higher-profit, lower-mileage trucks and SUVs than their foreign competitors.

Ford Motor Co. said Thursday it’s cutting production by 15 percent in the second quarter of this year and another 15 to 20 percent in the third quarter. Ford now says it won’t hit its target of getting back in the black by next year and may have to lay off more workers and close more plants.

Some parts of the economy will hold up relatively well; companies and regions that produce oil will do better. Oil companies are enjoying a spike in profits because production costs have not risen nearly as rapidly as market prices. Those higher profits could help boost local economies in regions where oil and natural gas are produced.

But those benefits will be more than offset by the negative effects of the surge in energy costs. Higher oil prices have already begun to spill over into higher costs for a variety of products and services, including food prices.

The threat of higher inflation makes life even more complicated for policymakers at the Federal Reserve, who have been slashing rates for nearly a year to try to offset the fallout from the housing slump and turmoil in the credit markets.

The surge in oil prices could force the Fed to reverse course and begin raising rates — before the benefits of those rate cuts have had time to take hold. Minutes of the Fed's April policy meeting, released Wednesday, indicated that the central bank could start raising rates in the fall.

The biggest concern is the potential impact on consumer spending, which accounts for about 70 percent of U.S. economic activity. Consumers have already been hit by the slump in housing prices — eliminating the equity "piggy bank" that many homeowners tapped as prices were rising. Home prices fell 3.1 percent in the first quarter of 2008 compared with last year, according to data released Thursday by the government’s Office of Federal Housing Enterprise Oversight.

Another widely followed reading, the Standard & Poor’s/Case-Shiller index, has shown even larger declines for major U.S. metropolitan areas.

Rising gasoline prices are one more burden on consumers. Economists estimate that every additional penny at the pump takes roughly $1 billion out of overall spending. Taxpayers getting rebate checks designed to revive spending and get the economy moving again have already spent much of that bonus to gas up their vehicles.

So far, there seems to be enough oil and gasoline to go around: Refineries are still adequately supplied with crude, and gas stations aren’t running out of fuel.

Prices are surging as traders see an increased risk of that happening. But that so-called panic buying could quickly reverse, sending oil prices sharply lower.

“This is all about psychology, and we are not very good at oil companies about forecasting the psychology of prices," Jeroen van der Veer, CEO of global giant Royal Dutch/Shell, said on CNBC Thursday. “So we'd better prepare ourselves for more volatility because if this is psychology, it can change very quickly.”

The spike in oil prices also has brought calls for government action, despite the limited short-term impact those responses could have. The Department of Energy has suspended purchases of oil for the Strategic Petroleum Reserve.

But Energy Secretary Samuel Bodman said Thursday he did not support the idea of selling oil from the reserves to try to drive down oil prices.

The petroleum reserve "is meant to deal with ... the physical interruption of the flow of oil to our country. We don't have that issue today," Bodman told a House hearing.

The last such move came in September 2005, when the U.S. released millions of barrels of oil from its reserves as part of a coordinated effort by the International Energy Agency to head off possible shortages. But the amount conrolled by the United States is a relative drop in the global barrel and would likely have little impact on market prices.

The price surge has also revived debate on U.S. energy policy. Some longer-term proposals that have failed to win the support of the majority in Congress, like opening up new areas of the U.S. for oil drilling, may now get another look.

“We have to expand domestic exploration, we have to add additional new refineries, we have to add nuclear power into our electricity grid portfolio, we have give rewards for conserving energy and have to continue to invest in research and development,” Rep. Adam Putnam, R- Fla., said Thursday. “We have to have an ‘all of the above’ energy policy.”

© 2008 MSNBC Interactive

URL: http://www.msnbc.msn.com/id/24778287/page/2/

Uncle Sam Wants Thugs And Illegal Aliens

Ethan Allen
Intel Strike Network
May 22, 2008

In the eyes of the military, it’s a simple numbers game. But the recruitment process for America’s armed forces is changing, and so is the look, feel, and policy of the military itself.

According to national statistics, felony waivers for recruits have been doubling almost every year for the past several years. Military.com reports:

“The number of felony waivers granted by the Army grew from 411 in 2003 to 901 in 2006, according to the Pentagon, or about one in 10 of the moral waivers approved that year. Other misdemeanors - from petty theft or writing a bad check to some assaults - jumped from about 2,700 to more than 6,000 in 2006, representing more than three-quarters of moral waivers granted by the Army. Army and Defense Department officials defended the waiver program as a way to admit young people who had made a mistake but overcome past behavior.”

Felony waivers consist of the worst elements, but there are also ‘conduct waivers’ for recruits who have had small issues on their records such as traffic tickets and minor drug offenses. Conduct waivers for Army recruits rose from 8,129 in fiscal 2006 to 10,258 in fiscal 2007. For Marine Corps recruits, they increased from 16,969 to 17,413.

“In particular, the Army accepted more than double the number of applicants with convictions for felony crimes such as burglary, grand larceny and aggravated assault, rising from 249 to 511, while the corresponding number for the Marines increased by two-thirds, from 208 to 350. The vast majority of such convictions stem from juvenile offenses. Most involved theft, but a handful involved sexual assault and terrorist threats, and there were three cases of involuntary manslaughter.”

The changing face of the military and increased use of felony waivers is even angering gays, who have already felt scorned for years because of the military’s ‘don’t ask, don’t tell’ policy.

Not only are recruits with felony waivers being signed up with the military, they’re also promoted faster.

“The Army study compared the performance of soldiers who came in with conduct waivers against those who did not during the years 2003-2006. In that time, 276,231 recruits enlisted in the Army with no prior military service. Of those 6.5 percent, or nearly 18,000 had waivers.

In a comparison of both groups the study found that soldiers who had received waivers for bad behavior:

– Had a higher desertion rate (4.26 percent vs. 3.59 percent).

– Had a higher misconduct rate (5.95 percent vs. 3.55 percent).

– Had a higher rate of appearances before courts-martial (1 percent vs. 0.71 percent).

– Had a higher dropout rate for alcohol rehabilitation failure (0.27 percent vs. 0.12 percent).

But they also:

– Were more likely to re-enlist (28.48 percent vs. 26.76 percent).

– Got promoted faster to sergeant (after 34.7 months vs. 39 months).

– Had a lower rate of dismissal for personality disorders (0.93 percent vs. 1.12 percent).”

But this is all old hat. Felony waivers, while on the rise, have been used for years. It’s just a matter of changing times, right? We used to hold our military to a higher moral standard, not only because of the deadly weapons of war the tax payer funds, but also because we send these boys and girls across the world to set an example to others as to how Americans behave.

But another aspect of the changing military, and one harder to justify, is the use of illegal aliens in the different branches of the armed forces. Recruiters have been caught trying to enlist illegal aliens, but of course official military policy is to deny that illegal immigrants are targeted, because as of right now it’s against policy to do so.

“There are currently about 37,500 foreign nationals from over 200 countries serving in the active duty forces and reserves . Seventy-one have died in Iraq and three in Afghanistan. The law currently provides for expediting the citizenship applications of U.S. service personnel, who become eligible to apply the first day they enlist. The presence of non-citizens in the U.S. armed forces dates back to the 18th century—“more than 660,000 military veterans became citizens through naturalization between 1862 and 2000,” according to a report by the nonprofit CNA Corporation.”

This ‘use but deny’ policy strategy has been brought to light more so in the past year, especially with the DREAM ACT which was introduced in 2007 as part of the Amnesty Bill.

“The Development, Relief, and Education for Alien Minors Act, or DREAM Act, is part of the stalled package of proposals that many in Congress are seeking to resurrect. The proposal, applicable to an estimated 750,000 undocumented residents of military age, stipulates that those who arrived in the United States before age 16, graduated from high school, and meet other qualifications could immediately enter the path to citizenship in exchange for at least two years’ service in the armed forces.”

Mexican citizen groups have also claimed that US recruiters have been seen near the border on enlistment drives.

“According to Prensa Latina on Friday in Culiacan, the capital of the northern state Sinaloa, civil activist Ildefonso Ortiz Cabrera told reporters that US military officers use young men of Latin American origin to recruit for the wars in Afghanistan and Iraq.

Then there’s this news report from Los Angeles that shows immigrants, some of which are admitted illegals, confessing to being approached by US recruiters. There’s also footage taken showing immigrant recruits training at the facility, which has grounds beside a mall in LA. When the reporters are discovered by Marine officials, the immigrant recruits are shown running inside the complex to hide from the reporters’ cameras.

It’s easy to see tyranny in motion when the United States military openly hires felons, and goes against its own policy to also hire illegal aliens in return for citizenship and goodies. The British Empire used foreign mercenaries for over 200 years in their reign. Is this the example we want to follow? Uncle Sam used to look for the best and brightest, the few and the proud. Now the Army is scraping the bottom of the barrel to fill replacement slots, that is until it can automate the whole thing and shut out all humans in return for robots and space based weapon platforms. When the entire military is made of chrome and metal and terminator robots are manning death camps, the days of hired thugs and illegal aliens will seem like a wonderful trip down memory lane, as will be the idea of our once free Republic.