It’s the Stupid Economy 3-26-11

26Mar/110

It’s the Stupid Economy 3-26-11

In Forbes, there's an interesting article on the US funding for Petrobras'* deepwater offshore drilling. The author is at pains to state that the loan offer was approved under the Bush administration, and that it benefits Soros only tangentially. I urge you to read the piece, because it has rearranged some of my preconceptions of how the Obama administration has been involved with these projects.

As usual, though, what I find most interesting about this presentation is what's left out of it:

And what about offshore drilling? Petrobras has 200 oil drilling blocs in the Gulf of Mexico, and it was banned from drilling just as every other deep water driller in the Gulf following the BP oil spill last year. On March 17, the Bureau of Ocean Energy Management and Enforcement at the Department of the Interior granted Petrobras a license to drill for oil and gas in their Cascade and Chinook wells. That oil and gas will come to the US. The ban on drilling for oil and gas in the Gulf of Mexico was lifted late last year.

So if Soros profits off Petrobras, so does the guy on the No. 9 bus in Iowa who owns 100 shares of the stock in his 401k’s global growth fund. And if Petrobras ever does utilize the loan facilities provided by the Export Import Bank, it is good for US companies who will get orders for goods and services, and good for Petrobras who will use those goods and services to pump out more oil for Brazil, and the world. More oil from Petrobras is not just good for Soros and the shareholders of his hedge fund; it is good for the price of gasoline as well.

The US banned drilling in the entire Gulf because of the quase-nuclear [sic] disaster of the BP oil spill. And if there is ever such a spill at Petrobras’ newfound Tupi oil wells, and tar balls start washing up on the shores of beloved Ipanema and Copacabana beaches, the Brazilian government will stop drilling just as the US stopped drilling in the Gulf of Mexico.

Kenneth Rapoza was based in São Paulo, Brazil from 2005 to March 2010 as a staff reporter for Dow Jones Newswires. He is a contributing writer at Forbes.com.

There's a lot of context missing from this piece. For example, the permitorium (as meep calls it) has meant that US oil firms are moving their rigs to places where drilling is permitted. Given the very high cost of operation, staffing and maintenance, they really have no choice in the matter. A side effect is that it increases competition and lowers prices for Petrobras, while reducing domestic production and causing bankruptcies and unemployment in the domestic industry. I hardly think that Mr. Rapoza can be unaware of the economics and the consequences.

Remember, as well, that we are told ad nauseam that the Amazonian ecosystem is the most important on earth. That is why, for example, Greenies have in the past made a great deal of noise about McDonald's purchasing Brazilian beef, grazed on pastures that used to be rainforest. How many Rainforest Runs have your kids participated in? There is no doubt that the Horizon disaster was catastrophic. On the other hand, it's rather mind bending that Salazar and company have issued their first drilling permit since that ecological atrocity to a partner of BP. It's also telling, and typical of this administration, that they have ignored judicial rulings that the ban is unlawful. Moreover, the courts have discovered that the presentation of the analysis of the experts that were hired by the administration to report on Gulf Horizon has been fraudulent.

Is there an excuse for that, Mr. Rapoza?

Then again, there's the issue of ideology and alliance. Brazil has its first Marxist President. I'm sure that Mr. Obama is sympathetic, but it's not an encouraging development. Venezuela and Ecuador (who have successfully sued Chevron in their own courts), under their own leftist regimes, have cozied up to the Arab dictators in OPEC, including bringing Islamist operatives into the hemisphere. Cuba and China are partnering to drill for Gulf oil, and there's nothing in Obama's ban that prevents them from doing so, and nothing that constrains them to take on the safeguards that are imposed in "American" waters.

Yes, the Brazilian stock market has been going gangbusters. Much of that can be traced to capital flight from US firms, under the enlightened gangsterism of Obama and his coterie of leftist faculty advisers. Then there is the media. Had this disaster taken place under Bush, there would be a lot more hand-wringing over dead sea kittens and the poor fisheries industry people who have been ruined by, not just the oil, but the very toxic dispersants used to keep it from producing photographic opportunities for depicting "quasi-nuclear" disaster. And that's not to mention the way that various police agencies have been recruited to minimize the digging around of journalists and concerned citizens.

Then there's the administration's commitment to ethanol, most recently expressed in a recommendation that blends be increased to 15%. It makes about as much sense as the Chevy Volt. Foremost among the environmental impacts are those on human environments. Conversion of foodstuffs into (poorly performing) fuels raises commodities prices, causes civil unrest, and increases fuel prices. It works like this: 1) corn prices go up; 2) food prices go up; 3) Arabs and others in poorer oil exporting nations (and it's amazing how many poor people there are in oil-exporting nations) take to the streets to topple their governments; 4) oil prices go up; 5) fertilizer and fuel prices go up; 6) back to 1 & 2.

So much for Rapoza. Now to VDH:

Consider the logic of the president's Orwellian declaration: The United States in the last two years has restricted oil exploration of the sort Brazil is now rushing to embrace. We have run up more than $4 trillion in consecutive budget deficits during the Obama administration and are near federal insolvency. Therefore, the United States should be happy to borrow more money to purchase the sort of "new stable sources of energy" from Brazil's offshore wells that we most certainly will not develop off our own coasts.

It seems as if paying lots more for electricity and gas, in European fashion, was originally part of the president's new green agenda. He helped push cap-and-trade legislation through the House of Representatives in 2009. Had such Byzantine regulations become law, a recessionary economy would have sunk into depression. Obama appointed the incompetent Van Jones as "green jobs czar" -- until Jones' wild rantings confirmed that he knew nothing about his job description "to advance the administration's climate and energy initiatives."

At a time of trillion-dollar deficits, the administration is borrowing billions to promote high-speed rail, and is heavily invested in the federally subsidized $42,000 Government Motors Chevy Volt. Apparently the common denominator here is a deductive view that high energy prices will force Americans to emulate European centrally planned and state-run transportation.

That conclusion is not wild conspiracy theory, but simply the logical manifestation of many of the Obama administration's earlier campaign promises. Secretary of Energy Steven Chu -- now responsible for the formulation of American energy policy -- summed up his visions to the Wall Street Journal in 2008: "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe." I think Chu is finally figuring out the "somehow."

Go read that whole 'nother, too.

A "firestorm": given what happened on the Gulf Horizon, could you think of more incendiary rhetoric? Jeebus.

* Contrary to popular belief, not named after a character mentioned in Hamlet.