Failure to curb oil speculation indicates continued economic failure of Obama administration

Most people on the left in the U.S hailed Barack Obama's election as President as proof of the man's political genius. Here was an African-American, with the middle name Hussein, who defied the political odds, to win the White House. Never mind that the Republicans had mis-ruled the country into the worst financial and economic collapse since the First Great Depression (Krugman is now writing about this period we live in being the third big depression in the country's history), causing an overwhelming number of Americans to demand a radical change in policies. In this wave of euphoria from November 2008 on, those few (such as your correspondents) who warned that Obama's choices of economic advisers and officials were danger signals that Obama was going to error badly on economic policies, were ignored or even shouted down. (See also The Bankers on Obama's Team, from Mother Jones, January 2010.)


The President's choices showed clearly he was an acolyte of the ruling elites' "neo-liberal" a.k.a. conservative a.k.a. shock doctrine economic policies in which the so-called "free market" is considered more astute and more efficient at allocating society's resources than the political system of government is. One example of the complete failure of "neo-liberal" economic policies is that the United States is more dependent than ever on foreign sources of energy, after four solid decades of complete bi-partisan "consensus" that the U.S. should achieve energy independence. I for one explicitly warned that the failure to destroy the political power of Wall Street and enact policies that favored investment in the real economy of production and distribution instead of the financial economy of speculation and regulatory arbitrage, would lead Obama into a terrible economic situation when it came time for his re-election: Will Obama forfeit a second term because of Wall Street?

The steep rise of oil and gasoline prices since the eruption of mass social protests in the Middle East and North Africa is a prime example of how the Obama administration's reluctance to interfere in the "free market" creates the economic conditions that will make the President's re-election ever more difficult. Simply put, Americans are feeling squeezed at the gas pump, and this is smothering whatever precious little economic recovery there is. The CEO of Wal-Mart last month sniffled that high gas prices are forcing Wal-Mart customers to spend a lot less this year.

Yesterday, it was revealed that Wikileaks show that Saudi officials have repeatedly warned American officials to crack down on speculators in the oil markets since 2008. The Saudis even told our not-so-bright public servants that if more oil was pumped out of Saudi fields, it would be near impossible to find actual buyers for the oil.

By Kevin G. Hall | McClatchy Newspapers
WASHINGTON — When oil prices hit a record $147 a barrel in July 2008, the Bush administration leaned on Saudi Arabia to pump more crude in hopes that a flood of new crude would drive the price down. The Saudis complied, but not before warning that oil already was plentiful and that Wall Street speculation, not a shortage of oil, was driving up prices.
Saudi Oil Minister Ali al Naimi even told U.S. Ambassador Ford Fraker that the kingdom would have difficulty finding customers for the additional crude, according to an account laid out in a confidential State Department cable dated Sept. 28, 2008,
"Saudi Arabia can't just put crude out on the market," the cable quotes Naimi as saying. Instead, Naimi suggested, "speculators bore significant responsibility for the sharp increase in oil prices in the last few years," according to the cable.
What role Wall Street investors play in the high cost of oil is a hotly debated topic in Washington. Despite weak demand, the price of a barrel of crude oil surged more than 25 percent in the past year, reaching a peak of $113 May 2 before falling back to a range of $95 to $100 a barrel.
The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators.
Read more.

FireDogLake is now reporting that yesterday a group of Democratic Senators, and Socialist Bernie Sanders of Vermont, met with the chairman of the Commodity Futures Trading Commission, Gary Gensler. Gensler is a former Goldman Sachs vampire squidling, and was decried, by yours truly and others, as an example of all that's wrong with American political economy when he was nominated by Obama. Senator Sanders apparently took a very hard line with Gensler in demanding that the CFTC use its new powers under Dodd-Frank to regulate the oil futures markets by to setting position limits on what any one firm can hold in oil futures contracts:

I found it somewhat unusual for Sanders to so bluntly state that the CFTC is flat-out breaking the law, especially after their enforcement action this week. But it’s hard to come to another conclusion. Dodd-Frank was explicit, that position limits needed to be in place by January 17, 2011. It’s May 27, and nothing has happened.

Read more.

Other examples of the way Obama's continued belief in neo-liberal "shock doctrine" economics is crippling the administration's economic policies were provided by another writer on FireDogLake, who noted the following points:

1. All seven of the firms represented on the Obama Jobs Commission are increasing their overseas investments, thus undermining all efforts at creating jobs for American citizens;

2. The administration continues to be in favor of passing the free trade agreements with Colombia, Panama and South Korea, though it is trying to use the trade agreements as pressure to get Republicans to accept expanded assistance for American workers who will lose their jobs. Thus, there is no longer any real debate over whether or not so-called "free trade" agreements help create new American jobs by boosting exports; the loss of American jobs is simply accepted as a result of the "free market."

3. And, the administration is doing nothing about the terrible practice of companies refusing to even consider people who are unemployed in their hiring of new employees. This is having disastrous effects on Americans who have been unemployed for more than a few months.

The FireDogLake author points to a USA Today article last Thursday on the horrible job market in the U.S.:

The nation has 5% fewer jobs today — a loss of 7 million — than it did when the recession began in December 2007. That is by far the worst performance of job generation following any of the dozen recessions since the 1930s.
In the past, the economy recovered lost jobs 13 months on average after a recession. If this were a typical recovery, nearly 10 million more people would be working today than when the recession officially ended in June 2009.

Right now, the political elites in the Democratic Party are merrily reassuring themselves that the recent victory of a Democrat in the special Congressional election in the hard red 26th District in upstate New York means, because of Republicans' over-reaching in their attempt to dismantle Medicare, the tide has now turned in Democrats' favor for the general election next year. What's really going on is that the citizens continue to shift back and forth between two terrible political choices, in their increasingly desperatesearch to find leaders who do not worship at the altar of economic shock doctrine neo-liberalism. Until Wall Street and the futures markets in Chicago are smashed, and the credit, monetary, and banking systems are forced to again be subservient and submissive to the needs of working people and the real economy, there can be no economic recovery - a recovery that the Obama team will be increasingly desperate to find, or conjure up through spin, as election day approaches.