However, I would be quick to point out that the “officially” reported gold holdings of China and Russia are likely erroneous. Since Iran was, until recently, able to keep information about its massive gold purchases fairly confidential (that may suddenly make their sovereign gold reserves on par with those of the United Kingdom), since China was able to keep purchases that doubled its gold reserves secret for six years before information leaked regarding their gold holdings, and since the executive chairman of the precious metals consultancy GFMS, Philip Klapwijk, just acknowledged that the IMF’s country specific reports on gold reserves is inaccurate, probably the safest assumption one can make about oil reserves, gold reserves and silver reserves is that no country is reporting honest numbers as every country scrambles to prepare itself for the second phase of the global monetary meltdown.

Though Mr. Engdahl only briefly touches on gold and silver price manipulation at the very end of this interview, the first step in breaking the criminal banking cartel’s commodities rigging game that solely benefits them while destroying the wealth of the world’s citizens is gaining an understanding of their rigging mechanisms. The banking cartel succeeds in creating “false” prices for commodities such as oil, gold and silver through their creation of bogus paper markets (futures, ETFs, etc.), in which sometimes a hundred times or more of the commodity is bought and sold in paper form than exists in real physical form. At the end of the interview, Mr. Engdahl states that he believes the petrodollar system can be broken quite soon by major players in the world economy today. I believe that the bogus gold and silver futures markets and bogus gold and silver ETFs can be destroyed as well in the future as long as people understand the rigging games executed in the gold/silver markets. The problem today is that the majority of people fail to understand these rigging games and that is why they have persisted as long as they have and why the world’s elite bankers have built their wealth enormously in the past decade at the expense of almost everyone other citizen’s well-being. For this reason alone, agree or disagree with Mr. Engdahl, the interview below, though very lengthy, is well worth your time if you truly wish to survive the next several years of economic chaos.

“We are in the Midst of an Epochal Tectonic Shift”

Given the fact, that the oil price attracts strong attention these days, it is more than just fitting to have a detailed conversation with one of the most prominent observers of the “black gold” business, F. William Engdahl. In the following exclusive interview, he discussed his views on the current oil price, the history of the oil interests in the 20th Century, the true aims of the “War on Terror,” and last but not least Peak Oil.

By Lars Schall

F. William Engdahl, born August 9, 1944 in Minneapolis, U.S.A., is an American-German freelance journalist, historian and economic researcher. He grew up in Texas, and after earning a degree from Princeton University in engineering and jurisprudence in 1966, and graduate study in comparative economics at the University of Stockholm from 1969 to 1970, he worked as an economist and free-lance journalist in New York and in Europe. His major topics of research are the geopolitics of oil. In addition to discussing oil and energy issues, he has written on issues of agriculture, GATT, WTO, IMF, politics and economics for more than 30 years, beginning with the first oil shock and world grain crisis in the early 1970′s.

He is the author of the best-selling book on oil and geopolitics, “Century of War: Anglo-American Oil Politics and the New World Order”, published 1992, revised 2004 (Pluto Press, London). From a review written by Myron Stagman:

“The distinguished economist and historian William Engdahl provides must reading with this book. A Century of War once again proves Santayana’s dictum, ‘Those who cannot learn from history are doomed to repeat it.’ (And proves George Bernard Shaw’s corollary, ‘We learn from history that we learn nothing from history.’)

The theme running throughout the book is the ruthless corporate and governmental pursuit of the magic moneymaker, oil, and the unremitting subversion and wars to seize black gold. Engdahl describes the US and UK corporations and governments as international predators, occasionally as rivals (in earlier times), but normally as an axis of financial and military power bent on capturing the petroleum resources of the world.”

Moreover, Mr. Engdahl has written the following books:

- “Seeds of Destruction. The Hidden Agenda of GMO”, Centre for Research on Globalization Publishing 2007;
- “Full Spectrum Dominance: Totalitarian Democracy in the New World Order“, Boxboro, MA: Third Millennium Press, 2009;
- “Gods of Money: Wall Street and the Death of the American Century”, edition. Engdahl, 2010.

With Century of War, Seeds of Destruction, and Gods of Money, Mr. Engdahl wrote a “trilogy of power” which followed the pattern that was once laid out by the Nobel Peace Prize Laureate of 1973, Dr. Henry Kissinger:

“Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.”

Mr. Engdahl belongs to the more widely discussed analysts of current political and economic developments, and his provocative articles and analyses have appeared in numerous newspapers and magazines and well-known international websites on economics and political affairs. Moreover, he is an Associate Editor and Research Associate of Michel Chossudovsky’s Centre for Research on Globalization (www.globalresearch.ca). He has also spoken at numerous international conferences on geopolitical, economic and energy subjects, and is active as a consulting economist.

F. William Engdahl lives near Frankfurt am Main, Germany and may be reached via his website www.engdahl.oilgeopolitics.net.

Mr. Engdahl, is the oil price by and large driven by massive speculation?
Mike Norman, the Chief Economist at the Wall Street firm John Thomas Financial (http://www.johnthomasbd.com), wrote to me in October of last year for example:

“Total NYMEX open interest in crude is 1.4 m contracts or about 1.4 billion barrels of crude. Daily volume of crude traded on NYMEX is over 1 billion barrels per day. Total daily global demand is only 83 million barrels per day. The amount traded on one single exchange is more than 10 times total daily consumption. It’s a giant casino with prices being driven up by speculators and consumers having to pay more and more.” (i)

FWE: I wrote back in the 2008 period, when oil briefly spiked-up to $147 per barrel and Goldman Sachs was issuing client-advisories that it was going quickly to $200, and when JP Morgan was advising the Chinese government that China ‘buy all the physical crude you can get your hands on because it is going to $200,’ at that point I wrote that roughly 60-70% of the price of oil then was pure speculation, manipulated by the GSCI, the Goldman Sachs Commodity Index. It’s a perfect scenario that they have created on Wall Street to control the oil price irrespective of supply and demand (ii). I would just add that the crucial ingredient these days is not the NYMEX for the global oil price benchmark, but the ICE Futures in London.

Why do I say that? Because the ICE Futures is a daughter company of the International Commodity Exchange of Atlanta in Georgia, owned by Goldman Sachs, Morgan Stanley, JP Morgan Chase etc. – the big oil banks that benefit enormously from the inside. There is absolutely no serious regulation of the ICE Futures. The British keep their hands off it, and the U.S. Commodity Futures Trading Commission, the CFTC, since 2006 under the “Commodity Modernization Act of 2000“ allows ICE Futures to trade energy futures without disclosure to CFTC in the U.S. market through London. So, in fact, it has deregulated and taken away from any government supervisory role the entire trade in energy futures, especially oil.

This is a rigged game. All you need now is a plausible event like this madman Gaddafi going berserk, or even a CNN perception of such, to then kick-off a snowball effect in the futures markets. These games are not sustainable over a ten year time, of course. Eventually it has to come back to supply and demand on some level, but the reality is that this is pure price and perception manipulation right now.

How much is the current upward movement of the oil price connected to the turmoil in the Middle East?

FWE: Well, the upward movement in the oil price began well before Christmas. The hedge funds and banks, which control and own the NYMEX, the ICE Futures and the Dubai Exchange, are using the Middle East events. I think they want to try to use that to push the price up to maybe $150 to $200 per barrel over the next few months. And why? In order to put massive political pressure on Germany and the European Union. Why they want to do that is of course a different question. But ultimately pressure on the emerging giant, China, that is beginning to act more independently than some in Washington would wish.

In case more events in the Middle East disrupt supply in a serious manner: does the world possess right now enough oil in inventory or spare capacity to cover that decline and prevent a price spike?

Gregor Macdonald wrote for example in an article with the headline “Spare Capacity Theory“ (iii):“In truth, the spare capacity that the world cares about—that the oil futures market cares about—is not the inventory level. But rather, actual production capacity that can be brought on immediately (iv).”

What’s your take on this?

FWE: The problem is there is no independent, non-partisan authority on the planet that knows what the totality of really usable oil spare capacity is. The Saudis keep it a state secret and most other Arab OPEC countries keep it a state secret as well. Presumably the NSA and various intelligence agencies have access to certain sensitive data in these countries, but we don’t. Moreover, there are reports that OPEC has been cheating for a long time on quotas and already pumping at capacity. The Saudis have said that they have a capacity to absorb Libya’s oil shortfall. I think if we see one more country, whether it is Oman, Bahrain or Algeria, go into a serious crisis, then we are in a new domain of danger short-term. The question is then how long will it last.

Do you trust Saudi Arabia’s ability to increase its oil production or will they face significant difficulties in doing so? (v)

FWE: I think the question is how much infrastructure in Saudi is online and how quickly could that be brought to the market. That Saudi Arabia has more than some ample oil reserves in the ground is no question in my mind. I was informed 15 years ago in Washington DC by an insider that the US satellite and other intelligence had confirmed the presence of enough oil just alone in the disputed territory between Saudi Arabia and Yemen to feed the entire world appetite for crude oil over the next 50 years – and that is only that piece of the desert. So that the oil is under the ground in that part of the world is no question to me. Iraq as well. In Iran you have the sanctions, which conveniently keep a lot of Iranian oil from the market at this point.

I think this is all part of a very complex and long-time planned replay of the U.S. oil shocks of the 1970′s, with the goal in mind of maintaining not just U.S. control over the oil markets, but over the global economies’ development. Too many countries since September 2001 begin to explore finding solutions outside dependency on Washington. I know from direct discussions with leading people throughout the traditionally “pro-American“ Arab OPEC countries, that they are fed up to here with Washington and its heavy handed demands on them, with their military bases, with their attempts to bring war against Iran and cause constant turmoil. They are looking to Europe, they are looking to Russia, they are looking to China, there is all kinds of cross flux and activity going on in these countries. I think that is the reason why the whole chessboard in the Middle East is being thrown up in the air by Washington right now. Whether that means that Saudi Arabia has the oil or not, there is no reliable source of information that says yes or no that I know of, certainly not that Swiss report the oil traders always cite.

The oil price is now well over $100 per barrel. That might be good for oil exporting countries, because they suffered under the devaluation of the US dollar; but isn’t it poison for the economic growth patterns of the industrial societies and in particular for China?

FWE: It is certainly not good for China. I think we are in a band between $ 80 to 110, where it’s not a growth killer for China and the global economy, but it’s like a tax, a 20 % tax on energy use in China and the rest of the world in dollar terms. I think this is something that the Chinese can manage as long as it remains short-term and around this level. Were the price to double to around $200 per barrel and stay there, that would represent serious problems for China in transition. But that depends on whether the Chinese would be able to make bilateral producer-consumer long-term supply-contracts with oil producing countries that isolate them from that dollar price effect.

Mr. Engdahl, before we talk further on oil, I would like to take a look with you at the place you were born, the United States of America. Without any doubt the U.S. has some profound financial and economic problems. But isn’t maybe the American elite the biggest problem of them all, since it seems that those people who belong to it have not the best interests of the American public at heart?

FWE: Well, if you look at the American history over the last century and even more, going back to the Civil War, with the rise of the House of J.P. Morgan based on defrauding the government for the sale of rifles during that war, when Morgan emerged as the Titan and No. 1 among the Wall Street “Gods of Money”, as I’ve called them in my book, it becomes clear. The American elite in that sense—the people with real power like the Rockefellers, who succeeded the House of Morgan after 1931—they never have had the interests of the American public at heart and they never will. They simply regard themselves as perhaps some of the Russian oligarchs regard themselves towards the Russian people, but even more so, they think they are literally the gods of the world. People are simply for them so many objects to be dealt with as they see fit like so many drones in an insect colony.

When you’re dealing with the United States you always have to differentiate between some 300 million normal people like you and I, who are trying to get on with their lives and trying to provide for their families and work a decent job and live a decent life, and maybe a handful of a few dozens of ultra-powerful people like David Rockefeller or in an earlier generation the House of Morgan. They literally see themselves as a race separate. That is one of the reasons why they have been fanatic backers of eugenics over the decades. Well before the Third Reich, they financed what later became Hitler-Nazi eugenics in Germany – the Rockefeller Foundation I am talking about. This is the kind of mentality of these elites.

So you think that this elite in America does not have an interest to stop the next Great Depression?

FWE: Well, let me give you an example: In May of 2009 at the home of the president of the Rockefeller University, a very, very elite assemblage of billionaires only – not millionaires but billionaires only – were invited at the behest of David Rockefeller and Bill Gates, they signed the letter invitation. They called themselves “the Good Club.” These are some of the wealthiest people in the world – David Rockefeller, of course, and Bill Gates with the Microsoft fortunes, Warren Buffet was there and Ted Turner of CNN fame. The subject of discussion, according to reports that leaked out, was not: ‘How do we deal with this world financial crisis and this great depression?’ Their absorbing passion in this meeting that they had in New York at the Rockefeller University was: How do we stop global population growth over the next several decades?(vi) So that will give you an idea.

It is my estimation at this point that they are trying to use the great depression that their financial shenanigans have caused. They deliberately created this securitization fraud, this Ponzi scheme after 1999, when Tim Geithner and Larry Summers were both in the Treasury department of the Clinton administration and they drafted the legislation for deregulating the banking system, allowing financial derivatives to be traded without any supervision by the Commodity Futures Trading Corporation, the U.S. Government derivatives supervisory agency – and they knew what they were doing. As Paul Volcker said in an interesting interview – I am certainly not a fan of Volcker from his past, but in this case I agree with him. Paul Volcker said about a year ago when he was asked what he would point to as the most positive contribution of banking innovation in the last twenty years: Well, if I think about it, there is one positive contribution – the invention of the automatic teller machine (vii). Other than that, derivatives and all this financial innovation, has done nothing but harm. That’s a paraphrase, but I think in this case Volcker is right on his estimation.

One major problem of our time might be that the central bank of the U.S., the Federal Reserve System, is privately owned.

FWE: Yes.

First of all: is this normal that a central bank is owned by a private banking cartel that can in this case run the monetary policy of the U.S.?

FWE: Let’s leave out the “normal” right now, that’s the direction that these money interests are trying to drive the entire world to get the world banking system decoupled from any kind of participatory pressure from the electorate. The Federal Reserve was created, as you know, in 1913. It was passed by an almost empty session of Congress two days before Christmas Eve in 1913 and signed within hours by President Woodrow Wilson, who some people say was put in as President – he was Princeton University’s president before that and then Governor of New Jersey – but he was put in as President on the money of J.P. Morgan, Rockefeller and so forth, with the sole purpose as a Democrat of giving left cover if you will to the creation of the Federal Reserve. It was a very controversial proposal that has been battered around since well before the financial crisis of 1907.

The fact is, and few Americans are even aware of this – they think that the President proposes a Chairman of the Federal Reserve and therefore the Federal Reserve is a government agency. It is not at all. The various distract banks of the Federal Reserve – the Dallas Fed, the San Francisco Fed, the St. Louis Fed, and above all the primus interparty is the New York Fed – are stock companies, who’s stock holders include companies such as A.I.G., JPMorgan Chase and so forth. So these are privately owned entities that make up the Federal Reserve System. And that is the core of the problem.

The Chairman of the Federal Reserve has one essential mandate: to preserve the power of the big banks – as one Congressional hearing in the 1920′s called it the “Money Trust” banks. And that’s really only about eight or at most nine institutions, I would estimate, that are really totally dominating the multi-trillions of derivatives worldwide, that are totally dominating the securitization scams and that are totally dominating Washington policy of the U.S. Treasury. So the privately owned Federal Reserve is, I think, one of the major problems of the ruin of the American industrial and social economy let’s say since the decoupling from gold in August 1971 certainly, and even before then.

As a historian, would it be an exaggerated statement to say that the entire history of the United States of America up to the year 1913 is the story of a Republic’s struggle against a central bank highly concentrated in the hands of a few men?

FWE: I think that’s a very interesting way to look at that history. You had the creation of the First Bank of the United States under Alexander Hamilton, the first Treasury Secretary. Many, even American historians, are under the impression that was a national bank owned by the U.S. government. In no way was this bank majority owned by the U.S. government. There was a minor stock share held by the U.S. government, but the main shareholders were private banking interests. Interestingly enough, one of the largest block of shares in the Bank of the United States was held by the House of Rothschild in London. So what the British lost during the Revolutionary War after 1776, they tried to get back through the back door by owning the bank that handles the U.S. public debt. The charter of that bank was not renewed, there were bitter fights in the history of that. There was a Second Bank of the United States created some years later and Andrew Jackson as President was a bitter enemy of the idea that the debt of the United States would be handled by a private entity.

And then during the Civil War, Lincoln issued Greenbacks. That was a form of fiat money in an emergency situation, but what it did, partially at least, was to take the control of the U.S. debt temporarily out of the hands of London and New York banks. That displeased London to an extraordinary extent. Interestingly enough, the evidence that has emerged about the assassination of Lincoln at the end of the Civil War all points to the hand of the House of Rothschild and London City bankers, financed through Judah Benjamin, who was a leading Confederate official – the whole John Wilkes Booth assassination of Lincoln. Judah Benjamin disappeared from the United States after the assassination and spent the rest of his years in England. So one can draw conclusions as to who had an interest in eliminating Lincoln, though of course we may never know conclusively.

The other thing was the war of 1812. A very bizarre war when you look at American history. The British started it with their ships off the coast of Washington and New Orleans. They started bombarding Washington and declared war, and they tried to move down from Canada. And that was apparently a revenge by the London banks for the fact that the U.S. President had allowed the charter of the First Bank of the United States to expire and not to be renewed. So very much of the history of the United States up to 1913 is about this struggle.

Also the whole question of silver versus gold. Gold was something in the interests of the House of Morgan in New York and certainly of the London banks, because they were the heart of the gold standard of that time. So if the United States would go on to a silver standard or even a bi-metallic standard, that would vastly diminish the power of J.P. Morgan, Rothschild and friends in London, Barrings and others. They bitterly fought William Jennings Bryant, a man famous for the speech “You shall not crucify mankind upon a cross of gold.(viii)” But they essentially defeated the silver faction through all sorts of Congressional corruption and manipulation and so forth. So very much of the American history is about these struggles, yes.

If all of this is true, then it is the more important to understand a) how the Federal Reserve Act was put in place, and b) how the Federal Reserve System actually functions. I think related to a) maybe you could talk a bit about the bank panic of 1907. Who was behind this?

FWE: Well, surprise, surprise: it was the House of Morgan and their friends. They created a run on a large independent bank in New York City and triggered what became the panic of 1907. It was turned into an industrial, economic depression across America with huge unemployment. Through that panic and their lobbying efforts they got the Congress to vote for setting up a national monetary commission to examine how to prevent future panics. Well, it was a panic engineered by the House of Morgan and friends, and the way to prevent future panics would be to give them the control of the nation’s money – take it away from the Congress, where it is mandated Article 1, Section 8 of the Constitution, and give it to the cartel of private banks that make up the New York Federal Reserve Bank, which was deliberately designed to be the most powerful of all the banks in the Federal Reserve System.

And then the Federal Reserve Act was passed. How does the Federal Reserve System function?

FWE: Today you mean?

Yes.

FWE: Basically, it has unlimited power to print money to put it in the popular jargon. This is what we see Ben Bernanke doing since 2008, these are trillions of dollars, but of course Bernanke refuses to divulge any great details about what they are actually doing with the banks and which banks are benefitting from this Federal Reserve largesse. They’re buying up all the toxic waste, putting it down on the Federal Reserves balance sheet and giving the banks then triple A rated U.S. Treasury notes in return.

The Federal Reserve has an Open Market Committee, the FOMC. They meet every six weeks to determine interest rate policy, essentially until today. Several members of the Federal Reserve Board in Washington, always the Chairman of the Fed, in this case Bernanke or before him Greenspan, would be on the FOMC, the other ten or eleven reserve banks around the country would have rotating seats on the FOMC. So not all eleven banks are represented at all times.

The thing is skillfully designed to give the majority power to the New York Fed. The New York Fed is always on the FOMC, because of the international role of the New York Fed – and the fact is that the Federal Reserve Act was drafted by Morgan & Company, Rockefeller, to give the power to the New York money center banks. So they are always on the FOMC. And of course the Chairman has enormous power over the decisions of the FOMC.

Officially, one of the mandates of the Fed is to maintain the stability and value of the U.S. dollar. (Mr. Engdahl laughs.) But one of the real results of the Fed seems to be the continued devaluation of the U.S. dollar in a quite remarkable fashion – which accelerated since the 1970s. Why so?

FWE: Simply because that was to the benefit of Wall Street. After the break of the link with gold in 1971, which I’ve mentioned earlier, the group around David Rockefeller, then at Chase Manhattan Bank, the family bank, realized that they had an incredible capability in their hands with a floating currency and the fact that the U.S. was the sole military superpower outside the Soviet Union. The fiat dollars that were being printed by the U.S. ultimately drove this devaluation worldwide over this period – I think there’s been a 2900 per cent inflation—that is, a two thousand nine hundred percent increase of the quantity of dollars circulating in the world economy since August 1971, according to the last data that I have seen, and in the twenty years before that it was something like 56 per cent increase of dollar reserves worldwide, so naturally that was a period of relative stable inflation or non-inflation really, and then after the break you had this highly inflationary period.

Well, what certain people around Paul Volcker and others figured out is that the debt was their best asset – best that was for the banks, for the private banks, not for the nation, but for the private banks. So as long as U.S. debt is rated triple A, and, absolutely essential: so long as the US dollar remains the reserve currency of trade and in central bank reserves worldwide, then the United States essentially can export its inflation as it did to Japan in the 80′s, now today to China, to the European Union and to the rest of the world. In effect, the dollar surplus lands have no choice with their surplus dollars, but to buy U.S. Treasury debt – to finance America’s wars around the world, whether it’s in Iraq directed against China’s ultimate interests or Russia’s ultimate interests, or any of the U.S. wars. Those are in a sense being financed by the dollar accumulations in the central banks of Asia and elsewhere around the world. So it’s a diabolical and quite clever scheme that they have realized: They could do that after the decoupling of the dollar from gold in 1971.

Ever since the early 1970s the dollar has been essentially backed by oil.

FWE: Well, that’s what I’ve called it. In my book “Century of War” I talk about the Petrodollar. This is something that has been misunderstood by some writers of late; they think that the dollar is still today a Petrodollar. Oil is the largest dollar traded commodity in the world economy bar none, that’s very clear. But today the dollar, I would say, is a currency that is backed not so much by petroleum prices priced in dollars, but more by F-16 fighter jets and Abrams tanks, in other words by raw US and NATO military might. It’s getting down to the basic essentials of power here since the beginning of the Bush administration. Bush and Cheney were brought in by the elites in order to take off the velvet glove and show the iron fist to the world, because more and more things were getting out of control of an American hegemony or American sole superpower situation with the emergence of China, Russia and different things going on in the European Union.

Let’s say then the dollar was backed essentially by oil.

FWE: Yes, going back to the period after 1973.

I would like to talk with you about an important event in that respect. This was the oil shock of 1973/74.

FWE: Correct.

You figured out in your book “Century of War” that this event was politically intended by a club that met on a Swedish island in 1973. Can you share some light with us on this topic, please?

FWE: Sure, most happily. I had the fascinating pleasure of being invited personally by Sheikh Zaki Yamani in September 2000 to his annual retreat outside London. He has an energy center in London that he founded after Washington got him dismissed as the Saudi energy minister during the reverse oil shocks of 1986, where Yamani was quite opposed to U.S. State Department pressure on Saudi’s monarchy. Yamani invited me because he had read the “Century of War” book – an Iraqi friend had given it to him. He called on me to give a presentation to this grouping of energy bankers from the City of London and oil men about what really happened in 1973. He introduced it by saying: “This is the only account that exists of what really happened in ’73 when I was head of OPEC and Saudi energy minister. I lived through this and Mr. Engdahl has described it accurately.”

What happened is the following: There was a meeting – and some people might get scared off and say this is conspiracy theory, but I am in possession of the actual confidential documents that quite legally came into my possession by chance in Paris years ago: the protocol from the May 1973 meeting of the Bilderberg Group in Saltsjobaden, Sweden. I have the attendees list from the Hoover Institute of War and Peace in California, I have the facsimile of the American secretary to the Bilderberg about which guests would be invited including Henry Kissinger from the American side to this May meeting. And in there, if you make the calculation, they listen to a presentation and debate, and these are some of the most powerful people in Europe and the United States – hand-picked by David Rockefeller by the way. The heads of all the major oil companies, the Seven Sisters, were also in attendance. They talk about what amounts to a 400 per cent increase in the price of OPEC oil in the very near future. Of course, they do not give specifics, but they talk in the abstract.

The entire discussion was not how do we as some of the most powerful representatives of the world’s industrial nations convince the Arab OPEC countries not to increase oil prices so dramatically. Instead they talked about what do we do with all the petrodollars that will come inevitably to London and New York banks from the Arab OPEC oil revenues. Henry Kissinger, who coined the term after the oil shock in 1973/74, talked about “recycling petrodollars.” And in fact what happened was – and this came directly from Sheik Yamani privately in a discussion with me at his home in 2000, he said: “I was sent by my King, the Saudi King, as a trusted emissary to talk with the Shah of Iran and asked the Shah why at the September 1973 OPEC meeting after the Yom Kippur war he was adamant about such a huge OPEC price increase as a permanent price.” And he said: “The Shah turned to me and said: ‘Tell His Excellency, the King of Saudi Arabia, if he wants to have an answer to that question, he must go to Washington and ask Henry Kissinger! (ix)” In other words, this was dictated to the Shah.

So this oil shock came two years after the free floating of the dollar, when the dollar was essentially falling like a stone, because the U.S. economy was starting to show major ruptures from the Post-World War 2 period when the U.S. industry was a world class leading industrial power and the gold reserves and everything else was in an ideal correlation to one another. The U.S. economy was coming into very, very severe structural problems in the early 1970′s. So the dollar was falling and the French and the German economies were really beginning to boom as was the Japanese economy, and certain elites connected with the money center banks in New York, I think, decided that it was time for a major shock to reverse the direction of the global economy, even at the cost of a recession in the American economy – that didn’t concern them so much as long as they were in control of the money flows.

Back in 1975, Washington sent a very senior Treasury official to Riyadh, and essentially told Riyadh that OPEC was not to sell a single barrel of oil unless it is priced in dollars, because at that time the German government, the French government and the Japanese government were all knocking on the door of OPEC, promising their quality machine-tools, the excellent high-quality German machine tools, French or Japanese trade that the Middle East countries so dearly wanted to build up their economies. But they asked it be sold against oil prices in their own currencies so they would be less dependent on the dollar. At that point, Washington intervened and said: “That’s a no-no. Oil must never be sold except in dollars (x).”

Why was this of essential importance to the U.S.?

FWE: Because since 1945, U.S. power projection in the world has rested on two pillars. One pillar is that the U.S. has the overwhelming military might on this planet. Today it spends more on military equipment, personnel and power projection than the next 42 countries in the world including Russia, China and all of Europe combined! The second pillar of U.S. power is the role of the dollar as the world reserve currency. Both two have a combined synergy. If anyone wants to understand the power of “the American Century,” as Henry Luce, the owner of Time magazine, called it in 1941, then they have to look at these twin-pillars and how they both interact.

The oil price jumping by 400 per cent in 1973/74 saved the dollar. The dollar had floated up on a sea of oil. Again, we have to remember that Nixon broke the link of the dollar with gold unilaterally in August of 1971, and after that time it plunged by some 40 per cent against major trading currencies like the Deutsche Mark and the Japanese Yen. What saved the dollar, what saved Wall Street and the power of the dollar as a financial thing, but not the U.S. economy by any means, was the 400 per cent OPEC price shock. That halted growth in Europe, it smashed the developing countries, which were enjoying a rapid growth dynamic by the early 1970′s, and it tilted the power balance back into the direction of Wall Street and the dollar system.

So if you look at the whole ensuing history of the 1970s into the 1980s Latin American debt crisis or Third World debt crisis, which also destroyed Yugoslavia, Poland and some other East block countries as well, that was all about recycling petrodollars through the euro-dollar banks, U.S. banks in London, British banks. This was the heart of the so-called eurodollar market then, the City of London – as well as select banks like Deutsche Bank, UBS and a couple of Japanese banks were junior partners in this.

But the main thing was: the Anglo-American banking elite recycled the surplus dollars that Saudi Arabia, Kuwait, the Emirates and all the other OPEC countries including Iran until the fall of the Shah circulated. By the way, the Shah himself ran all of the oil profits of the Iranian oil company through one single bank, and that was Chase Manhattan Bank of David Rockefeller – interesting fact of history. So through the recycling of Petrodollars, the dollar was tied to the price of oil and the oil majors, the Seven Sisters, the U.S. and British oil majors, really controlled the price of oil. They blamed it on the Arab sheiks, but the control lay in New York and London.

Today, I think the U.S. is going to do everything in its power to keep oil priced in dollars, but the role of the oil price in dollars is not as strong as it was in the mid 1970′s, because of the emergence of these futures markets controlled by banks such as Goldman Sachs—the advent of so-called “paper oil“. With that control of futures like ICE Futures in London they can ramp up the price of oil, as they did in 2008 with a price of $147 and then crash it down to the high 30′s. For what reason? They knocked the wind out of Russia’s sails at the time when Putin and Medvedev were using oil and gas export to create a major counter-pole to U.S. power in the world.

A high oil price is good for Russia and bad for China, is this the equation?

FWE: In general, yes. The problem for Russia is that it doesn’t control the market.

That was also a highly important, but seldom acknowledged reason for one real major event of the 20th Century: the collapse of the Soviet Union. That collapse had to do with this control of the oil price, too, correct? (xi)

FWE: There were several things. The Neo-Conservatives in the United States came first to political prominence when they bolted from the Democratic Party– I am talking about Irving Kristol, Richard Perle and others. They went into the Republican Party during the Reagan era. They played on Reagan’s simplistic view of the world – he was a B-grade Hollywood actor and very useful for saying soothing words to the American public, but behind the scenes the Reagan policy was managed by George Bush’s father, the intelligence community, the State Department and a handful of these Neo-Conservatives, and they were hawks towards the Soviet Union. They wanted to break the Soviet Union into a hundred of pieces, which is what ultimately happened in 1989.

Much of the strategy of the Reagan-Bush policy – because it was Bush, who was running much of the Reagan presidency as his Vice-President – both in Afghanistan against the Russian proxy government there in Kabul,(interestingly enough a policy which was actually initiated by Zbigniew Brzezinski already when he was Carter’s National Security head (xii), and the Contras operation against the dually elected government in Nicaragua, which was too left leaning for Washington’s pleasure and supported indirectly by the Soviet Union and Cuba – all of these hotspots were activated simultaneously, as well as the missile defense “Star Wars” programme that Reagan announced in 1983, the so called Strategic Defense Initiative – or the missile shield, that has been recently been revived by the Bush-Cheney administration toward Russia with the missile bases and radar defenses in Poland and the Czech Republic.

Leaving that aside, the key point in my estimation that – to put it in jargon – broke the camel’s back in terms of the Soviet Union, was the conscious decision of George Bush and George Schultz, the man from the Bechtel Corporation, one of the largest military contractors of the world, who was back then the Secretary of State – they consciously initiated, with pressure on the kingdom of Saudi Arabia, that the Saudis would turn on the oil spigot in early 1986 and flood the world with cheap oil. Well, that succeeded brilliantly from the standpoint of this U.S. strategy. It bankrupted thousands of small independent oil companies across the United States, but for Rockefeller, Standard Oil, BP, Shell and so forth that simply rid them of small competition and allowed them to buy up their oil assets on the cheap.

But the real point of it was: at that point, the Soviet military economy was dependent on hard currency dollars. And the only way they had to earn those hard currency dollars or the major way for some 70 per cent of their hard currency earnings back then, was through export in the Western markets of oil and to a lesser extent of natural gas. So by collapsing oil prices from the low 30s – it was 32 or 33, I believe, at the start of this – down to 9 dollars at the depth of the operation in mid-1986, the Russian economy suddenly was stretched to the breaking point. Gorbachev at that point was forced to simply suck the last drops of blood out of the satellite economies of Eastern Germany, Poland, Czechoslovakia and so forth, desperately trying to keep up with the arms race on the “Star Wars” with Washington, because if Washington would have won that arms race, even halfway, and Russia was behind, they simply would have to fall to their knees and surrender. So that, according to Russian economists whom I talked with after the collapse in 1994 in Moscow, that was what really broke the Soviet Union by 1988-1989.

Would you say that the entire 20th Century, including its two World Wars, cannot be properly understood without the oil interests behind the scenes?

FWE: Certainly a strong argument can be made. It wasn’t the only interest, but as Henry Kissinger reportedly said in the middle of the 1970′s, when he was without doubt the most powerful man in Washington: “If you control the oil, you control entire nations.” Even going back to the First World War, you can make a case that the control of oil by essentially the Anglo-Americans, the British and American oil companies, played a decisive role. As I detail in my new book I am finishing, “Oil: The Secret War“, during the last days of the First World War, a massive German western offensive of March 1918, Ludendorff’s Operation Michael, designed to split British and French forces and secure a victory before the arrival of American forces in Europe, looked very threatening. The collapse of the Kerensky government in Russia and the Bolsheviks’ signing of the Treaty of Brest-Litovsk on March 3, 1918 took Russia out of the war, and allowed Germany to redeploy large numbers of troops for the final campaign in the West. American troops had not yet landed in France and German chances of a military breakthrough were significant.

In December 1916 the German army had taken Romania after that country joined forces with England against Germany. In November of 1916, days before the German assault, British military commandos, led by British sabotage expert, Colonel John Norton-Griffiths, along with Romanian volunteers were sent on a secret mission to destroy oil stocks and sabotage oil wells in Ploesti. The sabotage was successful, dealing a devastating blow to the Germans who had made control of Romanian oil a strategic focus of their invasion. Romania was then Europe’s leading producer of oil. Despite intensive work, the German army was not able to bring Romanian oil production to a level needed to sustain the 1918 Spring Offensive in the Western Front. That Romanian oil was essential to the German motorized offensive along the Somme on the Western Front.

Ludendorff’s massive offensive in the west against France and the Allied Powers, after stunning advances, stalled at the Somme. German trucks carrying reinforcements to advance the battle were unable to move for lack of fuel. It was the first major battle in which motorized artillery and tanks had been used on a major scale. The German final offensive stalled largely for lack of essential fuel for its tanks and vehicles. It was a new mode of warfare and petroleum played a vital new role.

For their side, French and British forces were fully supplied with American oil from Rockefeller’s Standard Oil tankers.

A similar thing happened in the Second World War. Leaving aside all the aspects of ideology and the atrocious policies of the Third Reich, but seen strictly from a military standpoint, from military force, Germany never had a chance militarily to win the Second World War because the German General Staff astonishingly ignored the lessons of the First World War. It didn’t take care to militarily secure their strategic oil supplies for the war at a time when air power, tank power and naval power were all driven by petroleum. Only very late in the game, when Hitler had ordered Operation Barbarossa to begin in early 1941, did the General Staff began to get halfway serious in trying to support Rommel in North Africa. The idea was to capture the Suez Canal and cut off the British supply lines of the British Navy from the Persian Gulf that came through the Suez Canal, and thereby eliminate the threat of the British Navy. But most of the oil, I think almost half of the oil that the German Wehrmacht relied on during the war, aside from the synthetic oil that was produced domestically, came from Romania. And the companies who owned that Romanian oil were companies with names such as Standard Oil of New Jersey, Royal Dutch Shell and so forth.

I mean, if you’re talking just pure military strategy, you don’t fight a war when your firepower is dependent on fuel that is controlled by your enemy. I don’t think they deliberately sabotaged their chances. I think it was simply sheer ignorance of the significance of petroleum security in modern warfare. They hadn’t really studied that dimension of military power. They were one war behind, and they lost the Second World War because they failed to appreciate the way the British and French fought the First World War. As Clemenceau said after World War One: “The allies floated to victory on a sea of oil.” And this certainly was literally true.

How is the ”War On Terror“ at the beginning of the 21st Century related to oil?

FWE: The “War on Terror” was declared by the Bush administration after certain dramatic events in New York City and the Pentagon in September of 2001. What most Americans don’t bother to connect the dots and ask: “Well, if it is like the government says– this nasty character that was trained by the CIA for the war in Afghanistan against the Soviet Union, Osama bin Laden– if he is the Evil Knievel behind this death and destruction on American soil and he is hiding out in the caves of Tora Bora in Afghanistan, how is it that suddenly we forget about Osama bin Laden, leave him in the caves there, and turn our fire power to Saddam Hussein’s Iraq?”

Well, already in 1998, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and several other prominent Neo-Conservatives signed an open letter to President Clinton, demanding regime change by any means in Iraq. Saddam Hussein had to go (xiii). What was the situation in Iraq? The pressure of the sanctions, that were by and large bilateral sanctions imposed by the United States and Great Britain on Iraq down through the entire 1990′s, was beginning to break down within the UN security council. Iraq had through the “Oil for Food” program of the UN essentially financed the French government’s re-election under Jacques Chirac, according to information that later leaked out. Therefore, the French bank BNP Paribas was the bank that all the sales of Iraqi oil for food in the UN program carried out, and that was done in Euros, to benefit the French among other things.

The declaration of the “War on Terror” was really Samuel Huntington’s “Clash of Civilizations,” the concept of the so called Christianity against Islam. Bush even used the term briefly: “This is a holy crusade,” and then he was reminded that the earlier crusades in the 11th and 12th Century were not exactly a high-point in Christian culture, these were savage looting expeditions into the Middle East. The War on Terror was seen by some in Washington as the answer to the loss of Godless Soviet Communism as a new enemy image to mobilize Americans. It’s essentially a war whose goal and enemy is undefined. Terrorism is something that is ideal to create a new enemy image.

The problem that the Pentagon had after the collapse of the Soviet Union was that it had no enemy left. The Soviets were exhausted from the Cold War and literally sent up a white flag of surrender. They said: “Okay, you have the superior economic system it appears; we’re not able to keep up with you. We want to develop our economy; let’s stop this military confrontation.” So Russia dismantled the Warsaw Pact and started down scaling it’s military, except for the nuclear (which is perhaps the only thing keeping the world from a global Pentagon military rule today). But be it as it may be: the “War on Terror” had nothing to do with Osama bin Laden; he was merely an useful excuse. It has to do with creating a new enemy image after the collapse of Soviet communism for the American gullible population and for the world. Although outside the United States, I can say, that very few people are convinced of the U.S. argument for the “War on Terror.” They regard this as an excuse for military adventures anywhere Washington decides.

So why did Iraq become the target?

FWE: Because Saddam Hussein had made contracts to develop Iraq’s huge oil reserves. Iraq, as you know, is acknowledged as the second largest source of untapped oil in the world behind Saudi Arabia, at least by the U.S. government. Whether that is true or not, it has certainly huge reserves of untapped oil, but Saddam Hussein had not the resources with the economic embargo of the UN and the U.S. , no fly“ zone to develop that oil for the economy. So he had made agreements with the Chinese state oil company, the Russian oil company and the French oil company, primarily to give them rights to develop oil from some of the most promising unexplored fields in Iraq.

In a real sense the “War on Terror” is directed against China, Russia and the potential, as Brzezinski stated it in his 1997 book “The Grand Chessboard,” of Eurasia as a landmass in terms of geopolitics. That goes back to Sir Halford Mackinder, the British geographer, and his famous essay in 1904, “The Geographical Pivot of History”, where he talks about Russia and its landmass as “the Heartland” of the world. Brzezinski and Kissinger both are students of Mackinder. They do not talk about it often, but it’s clear that they were schooled in the British geopolitics strategy. And the idea is: you have to prevent at all costs a cohesion in the great powers of Eurasia.

Then in 2001 interestingly enough, the great powers of Eurasia: Russia, China and the various former Soviet countries in between, Uzbekistan, Kazakhstan, Kyrgyzstan, Turkmenistan created the so called Shanghai Cooperation Organization, initially as a dialogue forum for potential cooperation. It was initially not as the European Union, but at least as a beginning of some kind of a cohesion. And that presented the ultimate Halford Mackinder nightmare for American geopolitics, because as Brzezinski wrote quite openly: The only place on this globe that has the human resources, the scientific base, the industrial base, the energy raw materials base to present a challenge to American global power is Eurasia. That is literally what that “War on Terror” is about.

Why did Obama scale-up the war in Afghanistan? He didn’t scale-down the war in Iraq by the way, he only made certain deals and some cosmetic changes there. But he scaled-up the war in Afghanistan precisely directed against China.

The military bases that the U.S. has quietly constructed across Afghanistan, well over a dozen, are predominantly air bases, as is the Manas air base in Kyrgyzstan. And those air bases are there for one purpose: not to bring in supplies to rebuild the Afghan economy, the Pentagon doesn’t give a hoot-n-holler about that – it’s there to present a potential strike force against China in the future. As is also the U.S. military strategic cooperation agreement with the government of India to have a strike force from India into Pakistan, Afghanistan and the perimeter of China.

The real point is to control all strategic choke point corridors for the flow of oil from the Persian Gulf and from Africa into Eurasia, especially into China, to control the Strait of Malacca, which is the narrow passage near Singapore, and also to create unrest in Myanmar because the Chinese are building a huge pipeline going through Myanmar, so that they can bring oil from the Persian Gulf into China avoiding the precarious Strait of Malacca.

You also have to consider that the Orange Revolution in Ukraine was financed by the U.S. State Department. The National Endowment for Democracy, NED, which organized the Ukraine and Georgia color revolutions is a U.S. government financed entity. That was designed to bring a man into power, Yushchenko, who was personally pledged in back-channel negotiations to bring Ukraine into NATO. The same thing in Georgia with the US-orchestrated Rose Revolution under Saakashvili, who’s a thug, but he is Washington’s thug. They said: “We’ll back you to the hilt, if you do what we want in terms of bringing Georgia into NATO.” That was important, because the pipeline from the Caspian Sea oil reserves, that BP and several American oil companies were building, had to go for geographical reasons through Tbilisi, the capital of Georgia, into Turkey and ultimately into the Mediterranean port of Ceyhan. So the Baku–Tbilisi–Ceyhan pipeline depended on a pro-NATO
presidency in Georgia.

Mr. Engdahl, one critical topic of our time is the subject of Peak Oil. You are saying that Peak Oil is a myth. How did you come to that conclusion?

FWE: I went through an evolution in my thinking. During the Iraq War in 2003, I simply couldn’t comprehend why a U.S. Administration would risk relations with its closest European allies or allies all around the world, violating all pretexts of international law and UN rules and procedures to unilaterally declare war on Iraq (well, there was Tony Blair, but I think he was there because BP told him they had to have a chunk of the Iraqi oil after the invasion). And at that time I came across various arguments about the peaking of oil. I’ve said: “Aha, if this is the case, then that might be the answer, that the U.S. wants to make sure that they preemptively control that oil for the future.”

The more I then looked into it, the more disturbed I got with the explanations and the justification of this Peak Oil argument. I even went to an international conference of the Association for the Study of Peak Oil and Gas, ASPO, in Berlin and met most of the prominent names of the so-called “Peak Oil movement.“ In retrospect, it’s in certain ways more like a religion than a movement with a patron Pope named M. King Hubbert. But in any case, I began to ask certain scientific questions, because I wanted a more scientific reality, and I even went up to Sweden and interviewed the president of ASPO, who gave me a detailed slideshow presentation. He said that basically we knew that oil is a “fossil fuel“ and therefore its quantity is finite in relation to what happened 500 million years ago with dinosaur detritus and algae and other plant life, that got somehow pushed under through volcanic eruptions or soil erosions or earth quakes and then somehow
was compressed and converted into what we call petroleum today, or into gas or even into coal.

And then several friends drew my attention to work that had been done in Russia during the Cold War on the so-called deep origins abiotic theory of hydrocarbon creation. I met some of the Russians who worked with this over decades and I read their scientific papers. These were difficult papers, but they were intelligible. More and more I became convinced that the whole Peak Oil business was a myth. In my new book, that I have just finished, provisionally titled “Oil: The Secret War,” I discuss how the British and later the American oil majors around the Rockefeller group since the dawn of the conversion of the economy from coal to petroleum have cultivated a myth of oil scarcity.

Simple question: which interests are served by that?

FWE: The interests of the oil majors, of their bankers and of the UK and US power circles because it is to their advantage that nobody else gets independent control of energy. Why? Because energy is the governor through which they essentially control the world economy. In preparation for this book and in the course of my research, I went back to the original guru of the Peak Oil movement, M. King Hubbard. And he was quite an interesting kook, literally, even a leading member of a US futurist technocratic society that at the time was accused of imitating Mussolini’s Black Shirts. King was a geologist for Shell Oil Company, and when he prepared his now famous paper in 1956, that he was to deliver at the annual meeting of the American Petroleum Society, he gave it first to his boss at Shell. And his boss told him: “I don’t care what you say to the geologists in your speech, King, as long as you don’t talk this nonsense that oil reserves are increasing.” Of course, he didn’t talk the nonsense. But if you read his original paper of 1956, there is no scientific argumentation, it’s simply assertion. And the assertion is all based on the idea that oil is a fossil fuel and is limited. Nowhere is that proven.

Well, the Russians under the mandate of Stalin in the early 1950′s got the best geophysical, physical and chemical academics in Russia and Ukraine in a top secret project together, that was classified highly secret because it was so strategic, and they looked at the scientific basis to explain what the origins of oil were. They looked at the theory of fossil origins, and after they dug deeply into the literature, they said that this is absolutely absurd, there is no scientific proof of this, there is no causality that’s been demonstrated, it’s just asserted in American geology textbooks in the University, and because it is repeated so many times nobody even bothers to question if oil is a fossil fuel or coal is a fossil fuel, which M. King Hubbard also pointed out in his paper. Because to be consistent, they have to say that oil, gas and coal are all fossil fuels.

Then someone made me the argument: if you were to take the single largest oil field of the world, Ghawar in Saudi Arabia, which was discovered in 1948 and calculate the barrels of oil that Ghawar has produced up to the present, and then you hypothetically imagine that you could convert, let’s say, a dead dinosaur, that you could take the biomass of that dinosaur, bones included, 100 per cent, one to one to petroleum, which of course no one would argue is possible, but just to hypothesize, that you would require a cube of compressed dinosaur detritus or remains that is 19 miles wide, 19 miles high and 19 miles deep—only to account for that one huge oil field in Saudi Arabia. And that is to say nothing of the Permian Basin oil reservoir in Texas or the East Texas oil fields, which are vast oil fields. So then I began to really question this Hubbert peak oil hypothesis very seriously.

The Russians, with whom I later was in touch, said: “We think there is a different origin, and if you look at volcanoes, you come closer to the truth.” Their hypothesis at that point – now it’s been amply proven, even by the Carnegie Institution in Washington in independent experiments where they brought in some of the Russian scientists to consult with them – is that oil is created under the pressure and the temperature existing in the earth mantle.

Imagine that the core of the earth is a giant, gigantic nuclear reactor or if you look at a cut-away of a volcano in a geology museum you can get a good conceptual image for this, and this giant oven deep in the Earth mantle is spewing out matter at enormous temperatures and pressures constantly, and a volcano erupts because somehow the earth, which is constantly in motion, it’s constantly expanding minimally over time, creates cracks and fissures. We saw that with tragic consequences in the early part of 2010 in Haiti, where three major tectonic plates collide and diverge over the Port-au-Prince area. And also near Cuba – and that allows these volcanic eruptions to press up towards the surface and create mountains or volcanoes in certain cases. And if you trace the volcanic ring of fire in the Pacific and look at a map of the tectonic plates, you will find a fascinating correlation there.

So the Russians said: “This must have something to do with the origins of petroleum.” It comes deep from within the bowels of the earth and through these geophysical ruptures, cracks or faults or whatever you want to call them – the Russians call it migration channels—like you have in the Gulf of Mexico. There BP evidently hit a huge migration channel that went very, very deep and they were not expecting that, so the whole thing went completely out of control – the oil is being constantly generated, and what you have to do is look for where it comes closest to the surface.

Now, that is not an easy thing, but it is certainly a scientifically based thing, and as I said: several very rigorous peer-reviewed international scientific experiments have been conducted that demonstrate the creation of hydrocarbons in laboratory conditions under the temperature and pressure conditions that you have in the earth mantle. This is granite rock that we are talking about, so it’s not the so called sedimentary rock near the surface, where the dinosaur remains are said to be buried, no, it’s far, far deeper.

Of course, I can understand what you have just said, but would you agree with me on this: it isn’t really important whether Peak Oil is real or not, because if Peak Oil was real, then the supply will decrease. If it wasn’t real but will be pushed through with political intention, then the supply will decrease, too.

FWE: No, I think that is a misleading formulation of the question, because you’re assuming that: “will be pushed through” means the entire world. That’s one of the reasons, as I have pointed out in my new book, that the same elites, that Steven Rockefeller drafted the “Earth Charter” along with Maurice Strong, who is a Rockefeller protégé, one of the reasons that the Rockefeller faction in the Anglo-American world increasingly began to prepare the Global Warming fraud as a fall-back option, a “Plan B“ in case the Peak Oil myth was no longer credible, simply to have wars on every part of the earth in order to expand Pentagon control—Full Spectrum Dominance as they term it.

Take for example Darfur in Sudan, where the Chinese have tapped into what looks to be a giant oil reservoir that goes from Southern Sudan into Chad and Cameroon, it’s a huge reservoir and some people think it potentially could be a new Saudi Arabia. I can’t say that for sure, but I have seen maps and it’s apparently enormous. And that’s clearly the reason why suddenly Colin Powell declared that the Sudan government was guilty of genocide in Darfur. At the same time the CIA and arms merchants of death were funneling arms to the government of Chad for their mercenaries to go over the border into Darfur and start shooting up innocent civilians in order to give credibility to the genocide charges.

The global warming, I think, is the fall-back option, if you can’t convince the world of scarcity though Peak Oil, because suddenly oil giant fields are being discovered left and right. For example, in Cuba offshore, the Russians are helping the Cubans to develop a major field there. It looks like the Caribbean Basin, which was the site of a meteorite collision hundreds of millions of years ago likely, that that’s one of the largest potential oil areas on the planet – and that’s one of the reasons why this oil spill in the Gulf of Mexico went completely out of control, that wasn’t a normal oil strike. But the U.S. is determined to militarize and control the Caribbean Basin.

Another example is the offshore Brazil, gigantic oil discoveries there. So there are too many of these things popping up to keep the world convinced that Peak Oil is real and that we have to pay $ 300 per barrel of oil and start turning the lights out and burning candles.

Like many of the Peak Oil advocates say. They say: “Cuba is the model, because they don’t have automobiles, they have to rely on a non-petroleum economy because of the embargo, so we have to go to this kind of economy in the United States and Western Europe to compensate for the running out of oil.” Well, if you think about it, global warming accomplishes the same goal for these elites. If the world swallows the fairy tale that oil from transportation vehicles or from coal fired plants emissions of CO2 are the cause of something called the greenhouse effect, the so-called greenhouse gases, and that that is gradually warming the earth towards what Al Gore calls the “tipping point,“ and once we hit the tipping point then this will be the end of the road for the world.

Well, no climate model takes into account the one major influence on world climate: solar flares and solar activity, our Sun, as has been pointed out by the few courageous independent scientists whose careers haven’t been bought and paid for by BP or Wall Street banks. Wall Street controls the newly-founded carbon trading exchanges in Chicago and London—the Chicago Climate Exchange and the London European Climate Exchange. They control them via the ICE, Intercontinental Exchange in Atlanta Georgia that was created by Wall Street to control derivatives trade in things like oil.

So the Peak Oil myth just isn’t working, and that’s why we see this renewed massive propaganda attention from the elite media on global warming as “the greatest threat to mankind.” That threat looks a little bit dubious right now after we have experienced the worst winter in a hundred years sweeping across Europe and North America.

So the idea that the Pentagon can control all oil everywhere has reached its peak, if you want to call it that. They simply can’t control it. There is too much oil out there, there are too many accidental discoveries, and they are overstretched. It’s the “Imperial Overstretch,” as Paul Kennedy called it years ago (xiv).

So at least the American Empire – or the American Century – has reached its peak?

FWE: That’s one way to put it. The project that created the American hegemony after World War 2 was financed, lo and behold, by the Rockefellers, the Rockefeller Foundation, and carried out by the New York Council on Foreign Relation, which by that time was totally dominated by the Rockefellers…

You’re talking about the “War and Peace Studies”?

FWE: Yes, and in the “War and Peace Studies,” Isaah Bowman, who was one of the leaders of that project, an American geographer, and the other participants concluded – and that was in 1939, the project began even before Hitler’s panzers rolled into Poland – there’s coming a second world war, it will be a world war, not a European war. And America will emerge from that war as the world’s leading power.

But, they said, we will not make the mistake as the British and the French did: we will not call it an empire. American people don’t like to think of themselves as imperialists like the British. We’ll call it the extension of democracy and democratic freedoms. We’ll call it the spread of the free-enterprise system t other parts of the world, and under that cloak we will build our power as the unchallenged supreme power on the planet. And that, I have to say, was one of the most brilliant public relations propaganda ploys in modern history to not call it not an empire.

But it is de facto in every sense of the term, the domination of the Pentagon and the control is every bit as real as the British Empire, even more so.

Can you tell us at the end what you see unfolding in the next years? Will for example the petrodollar system completely end? And what do you think will happen at the precious metal markets?

FWE: What I see unfolding in the next years is this: We are – and have been since, I would say, approximately the early 1970′s – in the midst of an epochal tectonic shift in global political power, of the global power balance. The future – for the European Union countries as well for much of the world – lies in the future of nations or countries of Eurasia. Right now the European elites are clinically schizophrenic: half of their allegiance is still to cling on desperately to the Atlantic-Alliance with the United States, the other half of their reason knows rationally that the future lies in the East – whether it’s Russia, whether China, whether it’s the numerous countries in between in Central Asia, in the Middle East and as well as parts of Africa.

Europe has every potentiality, every possibility and every resource to create an economic Renaissance like the world has never seen. If the Europeans continue to hitch their wagon to the NATO-American star, then the prospects for Europe are grim indeed.

What we’ve seen with the currency war since the end of 2009, the dollar against the euro, that was initiated just at the point the Chinese government was talking about shifting major reserve assets out of the dollar into other currencies – which means the euro – and just at that point where the scale of the federal deficits and federal debt dimension as far as the eye can see going forward was just astronomical under both the Obama and Bush administrations and beyond, just at that point where the dollar experienced a systemic crisis, low and behold Greece explodes under the radar screens of the world hedge funds and currency traders, and that immediately focused on the euro-question, and then it turns out that the advisor to the conservative Greek government in the 2002 period, when they managed to fraudulently come into the euro-zone – something that never should have been allowed, but it was – has been Goldman Sachs. Goldman Sachs advised them on sophisticated derivative swaps that allowed them to hide their public debt and qualify under the Maastricht Criteria. Goldman Sachs today remains – during the entire Greek crisis that erupted in late 2009 – to my information, still the advisor to the so called social-democratic Papandreou government. So they have access to the most sensitive fiscal data and other data of the Greek government.

They play a Trojan Horse role here?

FWE: It would seem so that they play clearly a Trojan Horse role as does JPMorgan Chase and other Wall Street “Gods of Money” banks. The euro right now is in a fundamental crisis, this isn’t going away. The plan is to escalate this – the Soros Fund Management Group and several of the largest hedge funds actually had a meeting in New York to discuss this according to what was leaked to the press in early 2010. (xv) You can bet that they were discussing a concerted attack on euro-zone vulnerabilities – where is the next Achilles Heel? Well, Ireland! Who is the advisor to the Irish government, since they foolishly gave this blanket guarantee to the bankrupt Irish banks, which have gone into the Wall Street casino full scale, AIB and so forth? Well, it turns out that N.M Rothschilds of London is the advisor on the 77 billion Euros of debt that the Irish government suddenly acquired by taking over those fraudulent banks in Ireland.

The Irish government, ironically on the advice of Merrill Lynch which itself went under and had to be bought out, have turned the banking crisis into a sovereign debt crisis. Very, very sophisticated, clever move there.

The former Irish government was incredibly compliant to the wishes of the international banking community. George Soros even wrote in December 2010 an op-ed in The Financial Times, where he said: “It is more important to save the banks than to save sovereign debt (xvi).” That gives you an idea where Soros is. He is also an advocate of this European wide and not country specific euro-bond emission, which one should resist tooth and nail.

But be that as it may: the future of the euro-zone and the European Union, to my mind, is at a cross-roads over the next ten, twenty years, and that depends on what they decide vis-à-vis the future of their relationship towards Eurasia and their relationship towards NATO and the United States. The U.S. elites that control NATO aren’t going to give up, that’s obvious, without a huge fight. But that’s the fight on the agenda if we want to have a world worth living in, in the next decade.

Now, with regard on the petrodollar system: I think that can be broken today quite simply by bilateral de facto barter deals between China and Saudi Arabia or other oil countries like Iran, consumers and producers, without the intermediary of the London International Commodity Exchange, the ICE Futures, or the NYMEX in New York, or the Dubai Exchange, which is controlled by NYMEX – which in turn is controlled by Morgan Stanley, Goldman Sachs and the big money center banks in New York and London. If that control can be broken – and it is a very elaborate system that the Anglo-American Establishment has built up since World War 2 to control the price of oil – it certainly is possible to break that. It’s a political decision. At that point oil will cease being a weapon of geopolitical financial warfare and will become a normal commodity whose price is based on supply and demand, which it isn’t now.

The precious metal markets: We are in my mind very close to a breakout in the price of both in gold and silver. It hasn’t happened yet, but it will. They will substantially climb. The problem with precious metals is that the two major contenders against dollar hegemony, as you know yourself, China and Russia, have pathetically low reserves of gold in their central banks. If they were go to a bi-metal system, gold and silver, that could function. The Chinese, I believe, and perhaps also the Russians, could have substantial reserves of silver. China’s currency used to be based on the silver reserve system, as in many countries of the world, before the Opium Wars – and the Opium Wars were designed by the British back in the 1840′s literally to loot the silver treasury of the Chinese Empire, bankrupt the state and force them into trade dependence on the British.

Okay, one last question related to silver. What are your thoughts on JPM’s role in the silver market?

FWE: Well, if you go back to the stock market crash of October 1987, this is amply documented and I know it from friends who were there on the exchange trading floor during the 23 per cent one day drop in the Dow: at that point Greenspan as Chairman of the Fed sat down with JP Morgan and used JP Morgan as a conduit for an open checkbook of money from the Fed to go into the stock futures market through Chicago. And on the next open day of trading, to buy like there was no tomorrow on the futures for minimal amounts of money compared to the cost to buy actual stocks. And through the futures being driven up, that started to drive up the underlying stock prices on the New York Stock Exchange, and then of course the rumor mills started: JP Morgan is buying, the Big Boys are buying, the worst is over, this is an overreaction, etc.

Well, it seems fairly clear that JP Morgan Chase is playing a similar role today in the silver market, perhaps some other banks in gold. But if gold and silver really start to breakout, then it’s a new ballgame vis-à-vis the dollar, and they know that.

The power of the United States as the world’s sole superpower rests on two pillars – keep this in mind, Lars. This isn’t generally discussed, but it is essential to understand how the American Establishment functions since World War 2. The two pillars are: America as the sole unchallengeable military hegemony, and the second is the U.S. dollar as the world reserve currency. If that’s gone, the United States you can kiss goodbye as a functioning world power. The Wall Street money center banks know this, as well as the City of London and others.

The Germans to my mind are still a little bit naïve on how the power of money works since the Second World War. Germany used to have some very sophisticated economists going back to Friedrich List in the 1820′s and in that period. But since the end of First World War, I would say, that the quality of the strategic economic thinking in Germany has become significantly reduced, especially after 1945 and the US-guided German „re-education“ efforts.

How well the Berlin government understands that this is a currency war against the euro, because the euro is the only currency on the block today worldwide, certainly not the Chinese Yuan or the Japanese Yen, which could challenge the hegemony as a reserve currency of the dollar, I can only speculate. That Euro challenge has to be eliminated from the game. The next target will be Spain. If they can crack Spain, then they will move on to Italy – and then it will really escalate into a colossal mess for the euro as an alternative to the dollar.

Thank you very much for taking your time, Mr. Engdahl!

Sources:

xvi See George Soros: “Europe should rescue banks before states“, published at The Financial Times on December 14, 2010 under: http://www.ft.com/cms/s/0/76f69cd8-077a-11e0-8d80-00144feabdc0.html#axzz1GPhGoi7c

“What you know you can’t explain, but you feel it. You’ve felt it your entire life. There’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in you mind, driving you mad” – Morpheus

By the time you finish reading this article, you may discover that you have many more questions than answers. When I decided to write this article, my objective was not to provide answers but rather to demonstrate to you that many presupposed airtight beliefs may actually be littered with holes. Rather than to provide answers that may bring curiosity to a halt with the end of this article, my objective is to have inserted many more splinters in your mind that drive you to seek more answers, to question the beliefs you already question, and to validate the truths you already know.

Today, nearly everyone seems to realize that all major stock markets in the world are Casinos rigged by the banker/government cartel for their own benefit only. Among investors, there is a remarkably higher level of awareness today of the rampant fraud inherent in the world’s leading stock markets than even that which existed a mere five years ago. Only those that are absolutely rigid in their thinking despite the presentation of a mountain of credible facts that support the contention of massive fraud being perpetrated in stock markets remain among the few unable to comprehend the truth. Albert Einstein once stated that unthinking respect for authority is the enemy of truth. Too many of society’s widespread beliefs today were borne out of unthinking respect for authority, and because of this, many of us have been living the great majority of our lives in absolute darkness. Several weeks ago, I addressed this very topic in a 6-part video series that explores this very Empire of Illusion.

I’m going to preface this article by stating that this article contains largely my opinions though I present supporting facts when possible. This article also contains many deductions, extrapolations and opinions, though the deductions are derived from logic and the extrapolations, from common sense. In this article, I aim to demonstrate that many universal truths accepted as indisputable today by society-at-large, with origins in the banking/government cartel, are 100% entirely impossible to prove with facts. Furthermore, within the context of this article, I will demonstrate that my opinions often present a stronger argument for truth than the “truths” presented by the banking/government/media complex that have been so lazily accepted by millions of people around the world.

Admittedly, my articles often contain very passionate views and strong opinions. However, passion has never been the twin soul of inflexibility. I have changed my views on many different topics over the course of my lifetime as the direct result of the accumulation of more knowledge and the greater gifts of deeper wisdom. I would hope that any intelligent man or woman would always stand ready to adjust, alter, modify and/or eventually change one’s belief system if he or she encounters compelling new information that conflicts with or sheds news perspectives on previous beliefs, even if these previous beliefs were very tightly held beliefs. When the weight of evidence shifts the balance of judgment towards the probabilities of an opposition view as likely holding the correct belief, any intelligent person should give serious consideration to altering one’s present belief to the assumption of the opposition view, even if it is a minority one, and even if it is an unpopular one.

I don’t ask any of you to believe what I say in this essay just because I state it. That would be the apex of hypocrisy in addition to being antithetical to my belief system regarding how all men and women should arrive at his or her own truth. Instead, I invite all of you to perform your own research and form your own conclusions about the hypotheses I state in this article. Furthermore, I encourage all of you never to accept a belief just because your neighbor, your brother, your sister, your mother, your father, or your co-worker holds this belief to be true. I encourage each and every one of you to challenge beliefs you hold if you hold these beliefs merely for the simple and indefensible reason that this belief has persisted among society for hundreds of years. It is neither the level of our education nor the institution that educated us that makes any of us intelligent. Rather it is the willingness to challenge our present belief system, our openness to analyzing new knowledge, and our ability to critically think for ourselves independent of authority that makes us intelligent.

The Roman Catholic Church taught for centuries a geocentric view of the world that the sun revolved around the earth. During the centuries they taught this lie as indisputable and infallible, anyone that dared challenge this belief risked imprisonment or even death. Copernicus, a scientist that lived from 1473 to 1543, was the first well-known historical figure to challenge the Church with the idea of a heliocentric universe in which the earth revolved around the sun, though he was clearly not the first person to advance this truth. To avoid persecution by the Church, Copernicus never published the heliocentric theories contained in his book, “On the Revolution of the Celestial Spheres”, when he was alive. After Copernicus’s death, Galileo took up further advancement of the theory of the heliocentric universe. For daring to challenge the Church’s authority, Galileo was declared guilty of being “vehemently suspect of heresy” and was imprisoned from 1633 until his death in 1642. It was not until 1758, more than 200 years after the death of Copernicus, that the Church finally revoked a general ban on all books that advocated a helicocentric view of the universe. However, even after lifting its ban, the Church only allowed public access to heavily censored versions of Galileo’s Dialogue and Copernicus’s De Revolutionibus. Surely if one widely accepted lie could persist as the truth among the masses for centuries as a result of those in power suppressing fact, then many similar instances are possible.

“Banking and fraud were born into our global word as Siamese brothers, inseparable since birth. And just like Siamese brothers, if ever separated, they would likely die together as well.”

Today, one may assume that banking and financial fraud is more prevalent today than in decades past given the greater visibility of this subject matter provided by the independent media and to some extent, the mainstream media. Persistent whispers of high-tech fraud in the form of High Frequency Trading programs that control the daily behavior of stock markets with SkyNet-like efficiency and headlines of covert deals made under the shadowy cover of dark pools reach the public’s ears and eyes, and the public readily believes that the levels of banking and stock market fraud are much greater today than they had been in the past. But the public fails to recognize the yin and yang of fraud. The depths of the economic lows today are only possible because the summits of the economic highs of yesterday were also built on fraud. The truth is, banking and stock market fraud was rampant all through the Bush Sr. and prosperous bull market Clinton years as well. The only difference was that because the fraud of this time was busy creating warm, giggly feelings of false prosperity, the masses believed that these times were honest times. Even Arthur Levitt, the Chairman of the Securities and Exchange Commission from 1993-2001, was smart enough to know that this was not the case. By the time the Glass-Steagall Act of 1933 was “officially” repealed in 1999 through a collaborative effort between Citigroup CEO Sandy Weill and Fed Reserve Chairman Alan Greenspan, Mr. Levitt himself stated that the repeal of the Glass-Steagall Act was nothing more than a mere formality. The reality of the banking and investment environment at this point, Mr. Levitt stated, was that the US Federal Reserve, at the behest and incessant lobbying of its member banks, had already “almost totally eroded” ALL of the protections of Glass-Steagall.

So do not mistake the illusion that is often sold to the masses as reality as actually being reality. Goldman Sachs did not just become the Rolling Stone, Matt Taibbi-bequeathed “great vampire squid wrapped around the face of humanity” this past decade. Goldman Sachs has been doing what Goldman Sachs does since it was founded in 1869. The notorious Italian-American gangster Lucky Luciano, after learning of the corruption of Wall Street, allegedly stated his remorse over his choice to become a gangster versus a bankster after spending a day on the floor of the New York Stock Exchange in the 1940s. Before being deported to Italy due to crimes he committed as a gangster, Luciano allegedly confessed, “ I suddenly realized I had joined the wrong mob.”

Banking and fraud were born into our global word as Siamese brothers, inseparable since birth. And just like Siamese brothers, if ever separated, they would likely die together as well. Below is just a very small sampling of the voluminous amounts of articles which I’ve written regarding the fraudulent state of markets over the past five years, including some very accurate predictions that were based upon an understanding of this fraud.

“A Market Rally in Monopoly Money”, September 9, 2009

“Can Rising Stock Markets Serve as a Sign of a Crashing Economy?” June 10, 2009

“The Biggest Stock Market Scam of the Century, the Nuclear Option, is Being Unleashed – But Will it Succeed?” March 23, 2009

“Recent Anomalies in U.S. Stock Markets – Proof of Free Market Intervention?” May 11, 2008

“Will US Markets Crash Now or Later?” April 23, 2008

“The Coming Dollar Crisis & Subsequent Gold Boom”, January 31, 2008

“Is Hyperinflation Coming to the US, Time to Stock Up on Gold”, November 7, 2007

“The Short-Term May be Rosy, But Beware the Financial Crisis that is Building Steam”, March 21, 2007

“The Peak Investment Crisis”, September 9, 2006

Today a great number of people, from retail investors to investment advisers, understand that although stock prices still move on earnings statements, cash flow, forward projections, etc., none of these parameters have any credibility anymore as tools in projecting future stock price behavior. Corporations across the globe have used the allowances of massive accounting changes in their respective countries to create fantasy-land numbers that basically shelter our eyes from the truth while feeding our brains the same output from the same banker/government propaganda program – that all is okay in Wonderland.

In fact, even the great vampire squid establishment known as Goldman Sachs shockingly admitted that the great propaganda machine has been showing signs of breaking down. This month, Goldman Sachs’s David Kostin, finally admitted what not only I, but what a handful of others have been saying for many years now: “The economy is NOT the market.”

“Every business school in the world should have a class titled The Empire of Illusion 101 so business students can learn that economic theory and economic reality are creatures that reside at the opposite side of the spectrum and whose paths infrequently cross.”

For this reason, I’m going to take you down a new rabbit hole that remains relatively unexplored – the rabbit hole of the commodity world. I don’t believe that there is a single global commodity today that is sold at a free market price or even remotely determined by the free market forces of supply and demand as every economics professor from here to Timbuktu teaches in their Economics 101 class. I believe that Bankers rig the prices of all global commodities and control prices for their benefit only to the detriment of the wealth of their nations’ citizens. The price of all commodities, not just the ones most important to bankers such as precious metals, currencies, energy resources, and food, is always determined by their perceived values and not their real values.

Just reference this video, where I provide a foolproof test for people so they can understand that diamonds are just one of thousands of commodities today sold on its perceived value versus its real value that would be determined by the free market forces of supply and demand. Though the well-documented 1870 discovery of thousands of pounds of diamonds at the Orange River in South Africa stripped the diamond of its status as a precious stone, millions of people worldwide today still willingly pay a price for diamonds that reflect their erroneous belief that it is a precious stone. Just as the diamond cartel sets false artificial prices for diamonds in the world market, bankers set false prices for many of the world’s most actively traded commodities.

In every business school around the world, business professors constantly teach a new batch of naïve, impressionable young adults the Empire of Illusion. They teach students that prices of commodities are set by the free market principles of supply and demand. Practically all of us have seen the supply and demand chart that is the staple of Economics 101 classes around the world. Supply goes up, demand is constant, price falls. Supply diminishes, demand is constant, price increases. Supply is constant, demand falls, price falls. Supply is constant, demand rises, price increases. And eventually supply and demand forces will meet at a theoretical point of price equilibrium. These are all complete myths, for in the real world, bankers create artificial supply and artificial demand numbers to set real prices. Therefore, supply and demand forces, while affecting the price of commodities, do not impose the largest effect upon the final price points of commodities.

Every business school in the world should have a class titled The Empire of Illusion 101 so business students can learn that economic theory and economic reality are creatures that reside at the opposite side of the spectrum and whose paths infrequently cross. Perhaps a decent analogy to help people understand the illusion of free markets is the illusion of the political world. In the United States, The Powers That Be (TPTB) designed the two-party Republican/Democratic system to give people the illusion of hope that accompanies change and the illusion that they have some type of choice. In reality, bankers control both parties, as is clearly evidenced by the fact that there has been zero change in fiscal policy in the United States for the last 22 years during which George Bush. Sr, William Jefferson Clinton, George W. Bush, and Barack Hussein Obama all served as Presidents. Since the political system is corrupt and the same small elite group of bankers control the President regardless of his political affiliation, the process of elections is nothing more than a charade that only ensures that TPTB have a different face to present to the public that they can sell as one that represents change, if the previous President had been unpopular with the people.

Capital markets are exactly the same. The bankers have taught the world that free markets exist to present people with the illusory belief that the people just may have some control in setting prices in capital markets. However, in the end, the reality in the political markets and the commodity markets is exactly the same. Though people imagine they are in control, bankers manipulate all scenarios in these markets just as a four-star general would command his absolutely obedient foot soldiers in a military theater operation. It’s a damn shame that millions of wide-eyed students grow up believing the utter nonsense of supply-demand determinants and free markets that they learn in business schools all around the world. Bankers, through fostering massive speculation in futures markets as well as releasing potentially fake supply numbers, play an enormous role in dictating the perceived value of every commodity on earth. This is what economic professors should be teaching their students in Economics 101, but they don’t and they never will.

As I continue to uncover the mechanisms of the commodity matrix in this article, I believe this article to be one of the most important I have written in the last five years. I believe this article to be more important than even any of the dozens of articles I’ve posted on my blog that provided very specific guidance about specific sectors. Why? The answer is simple. If this article can open people’s eyes so they can experience the déjà vu of spotting the black cat in the matrix and therefore learn to see the matrix itself, ultimately the ability to see the moving parts of the big picture will allow people to connect the dots on their own and help them far more during the second phase of this global monetary crisis than any specific, short-term guidance.

Since there are literally thousands of commodities to choose from, I have chosen to discuss the Empire of Illusion with five commodities only: Gold, Oil, Food, Money and Education. Let’s start with gold.

Gold – Price Suppression Schemes Galore?

By official IMF reports, the United States is supposedly the largest holder of gold reserves in the world, at 8,133 tonnes. I say “supposedly”, because the Federal Reserve has not allowed the US’s reported gold reserves to be confirmed by an independent third-party audit since January 20, 1953. Thus, nobody really knows how much physical gold the US owns, except those that blindly accept the government’s word as the truth. There are many additional reasons why the official US gold reserve tonnage remains in doubt besides the lack of confirmation of the IMF reported number in more than 58 years. During the 58-year period since the last audit, leaked US Central Bank documents uncovered by GATA have confirmed numerous speculations that the Federal Reserve has dumped US gold reserves in the form of Central Bank swaps and/or through lease arrangements with global bullion banks. Just how much of this gold may have disappeared from US bank vaults to achieve the suppression of gold prices is anyone’s guess as is the amount of these gold swaps and leases that have actually been returned to the US.

Of course, the true numbers of US gold reserves are not the only numbers brought into question. It seems that all Central Bankers, no matter what their race, have a genetic propensity to lie. In April, 2009, the Chinese Central Bank announced in April, 2009 that it’s gold reserves were really twice its prior “officially reported number” for the past five years. And in June 2010, Saudi Arabia followed suit when it announced that, due to an “accounting error” its gold reserves had, like China, more than doubled overnight. If anyone believes that China is really disclosing the true amount of their gold reserves to the world today, then let me dispel your naïvete with a quote by former US Federal Reserve Vice Chairman Alan Blinder: “The last duty of a central banker is to tell the public the truth.“ So it’s not just China and the US’s gold reserves that I question, but I question the validity of gold reserve numbers from every key Central Bank in the world. Ask the Bundesbank of Germany if they can prove they have custody of their reserves in their own country and you will likely not receive a straight answer to this relatively simple question either.

And what about the demand side of the equation? At a CFTC hearing in April, 2010, in a well-covered story, Jeffrey Christian of CPM Group confirmed that what is loosely called the London “physical market” trades up to a hundred times more paper gold than there is physical metal supply to back those trades. So even demand numbers in the gold market have been proven to have little integrity. The not-so-invisible hand of banker fraud is clearly at play in heavily determining the price of gold. Finally, many of the same price suppression schemes that bankers have utilized against gold have also been utilized against silver, though I am not going to broach that subject here for lack of space and time.

Oil – Is it Even a Scarce Resource?

With oil, I believe that the banking/oil cartel utilizes the same perceived and artificially low supply scam as the diamond cartel to effectively create deliberate wild fluctuations in oil prices that they can capitalize on to amass great fortunes. Over my investment career, I have written both articles declaring my belief for the peak oil theory as well as articles in which I rejected the peak oil theory after becoming privy to additional knowledge of which I had previously been unaware. I stand today, after further research, firmly no longer a believer in the peak oil theory. Yes, I am aware of the reported figures about dwindling production in Mexico’s largest oilfield, Cantarell. Yes I am aware of rapidly dwindling oil production numbers for global oil production numbers as well. Yes, I am aware that the predominant number of people in this world believes in the Peak Oil Theory (which alone is reason for me to start questioning it). And yes, I am aware that many will think that it is ludicrous to challenge the Peak Oil Theory. But should the concept of challenging a “universal truth” that we have been told, even instructed to believe, ever be considered ludicrous? For that is all I am suggesting here. I will present facts of an alternative theory regarding the possible abundance of oil that merit consideration and I merely challenge you to consider the possibility that it could be true.

When there is a belief as widely accepted as the Peak Oil Theory, one must always question the source of this belief. In addition to my blogs over the past five years that have explored the fact that virtually every key economic indicator statistic produced by governments are blatantly false, there are many others that have also done a fine job of establishing this fact (just perform a quick perusal of the website ZeroHedge if you are ignorant of this fact). Why do governments produce economic lies? Because they have a better chance of maintaining power if they can successfully con the public into believing the “rosy” economic lies they produce. Why does the diamond cartel produce phony diamond supply statistics every year to mercilessly jack up diamond prices on unthinking, lovestruck men every year? Because producing phony supply statistics allows the diamond cartel to charge artificially high prices for diamond. In other words, the producers of these lies are also the greatest beneficiaries of these lies. So who benefits from the production of phony oil supply statistics, higher oil prices and a fear of peak oil? The oil cartel and bankers.

Understanding the shadowy world of bankers requires one to think like a detective in pursuit of a criminal. Identify a motive for why supply numbers for various key commodities may have been falsely manufactured and you will find the likely culprit behind these manufactured numbers. I have already illustrated to you earlier in this article that bankers have lied to the world about the fundamentals of stock markets and the real determinants of stock price behavior. I have also illustrated to you that bankers have lied to the world about the real determinants of gold and silver prices. I will reveal later, a quote from a Vice Chairman of a Central Bank that reveals his belief that it is not just the prerogative, but also the duty of a Central Banker, to lie to the public. So knowing this, why would anyone believe that bankers would tell us the truth about the real determinants of the price of a barrel of oil?

When oil incredibly soared from $51.20 on January 17, 2007 to $147.20 a barrel in 7 months, and then incredibly crashed to $35.35 a barrel just 5 months later, and then incredibly soared to $81.19 a barrel just 10 months later, I challenge anyone to produce figures of changing supply and demand determinants than can logically explain these massive swings in price over such a condensed period of time. Of course, the textbook media answer provided for these wild swings in price was that enormous global demand caused oil to soar in 2007, a crashing economy in 2008 caused a nosedive in 2008, and economic recovery caused soaring prices once again in 2010. I contend that the real answer is that Wall Street firms engineer massive manipulation of oil futures market contracts to create a significant portion of these wild swings, if not the majority portion of these wild swings, even though “official studies” only attribute a nominal amount, perhaps 10% to 30%, of these wild fluctuations to speculation. Global oil prices, like global gold prices, are completely determined by a paper futures market today. So it is not the producers of oil that cause oil to rollercoaster from $50 to $150 to $35 to $80, and it is not speculators that produce the wild swings in supply and demand estimates that create these rollercoaster rides. Rather it is the bankers that control these paper markets and that control the supply and demand numbers that create these wild swings in price.

When I first started discussing enormous fraud in the pricing behavior of gold markets six years ago, people used to regularly ridicule me for my beliefs, especially whenever I publicly blogged about my beliefs. Back then, my beliefs were grounded in my own research as well as the very substantial mountain of evidence provided by GATA that had not yet made its way into the general consciousness of the mainstream public. Today, public beliefs about gold price suppression schemes have evolved 180 degrees. Now deniers of gold price suppression schemes, not I, are the ones viewed as naïve. I believe the same realizations will eventually happen with all commodities, not just gold. Does anyone else but myself notice that when oil prices are skyrocketing, peak oil theories are widely discussed as the instigator for higher oil prices. However, during times when bankers decide to move the price of oil much lower, why does peak oil almost never factor into the discussions of oil prices?

“Proposing that we know for certain that the process to form oil takes hundreds of thousands or millions of years seems far more absurd to me than the alternate theory of abiotic oil, where scientific evidence supports that the carbon found in the building blocks of oil are not formed from the decomposition of fossilized remains.”

F. William Engdahl, an economic researcher, historian and freelance journalist for some 35 years, states,

“The whole peak oil theory rests on the idea that oil is a fossil fuel, which is accepted as religious dogma by almost every geology department in most of the world. The problem is, oil is not a fossil fuel, it’s not from the detritus of dead dinosaurs or from algae from under the ocean or bird fossils or whatever fossils you want to take. It’s not a biological product.”

If this is true, then what is oil? There is another theory about oil’s origins that very few people are aware of called the abiotic theory of oil that actually has a lot more scientific credibility than the much more speculative “fossil fuel” theory of oil. Mr. Giora Proskurowski, a scientist with the School of Oceanography at the University of Washington in Seattle, recently headed a study that produced some very interesting conclusions. Oil, Proskurowski stated, may actually be a natural product that the Earth’s mantle constantly generates and whose source may be living organisms as small as plankton rather than decaying ancient forests and dead dinosaurs. The advocates of this alternative abiotic theory of oil production believe that oil seeps up through bedrock cracks and is deposited, rather than originated, in sedimentary rock as the fossil fuel theory of oil claims.

As proof of the increasing credibility of the abiotic theory of oil production, scientists point to the Lost City, a hypothermal field 2,100 feet below sea level located along the Mid-Atlantic Ridge at the center of the Atlantic Ocean noted for its strange 90 to 200 foot white towers that bubble from its vents. In 2003 and 2005, Mr. Proskurowski and his team descended in a submarine to collect samples of the liquid that bubbles from the Lost City sea vents. Upon analysis, Proskurowski and his team discovered that the liquid that contained natural gas and the building blocks for oil, hydrocarbons. However, the hydrocarbons from the Lost City sea vents contained carbon-13 isotopes. They found no evidence of carbon-12, the carbon isotope typically associated with biological origin. Proskurowski and his team postulated that the hydrocarbons found in the Lost City sea vents were formed from the mantle of the Earth through an abiotic process of Fischer-Tropsh (FTT) reactions, and not from biological material that had settled on the ocean floor.

During the German Nazi regime, Nazi scientists developed FTT equations that could produce synthetic oil from coal and contributed to the world’s understanding of an abiotic process of oil production. Proskurowski also discovered that the methane in Lost City contained no carbon-14, which also lent enormous credence to the scientists’ hypothesis that the carbon source for the hydrocarbons of the Lost City vents came from within the earth’s mantle, far away from organisms that might have had contact with the global carbon cycle at the surface. In other words, the Lost City vents contained organic material formed by inorganic processes, the exact antithesis of how the fossil fuel theory postulates that oil is formed. Before Proskurowski’s study, Cornell University physicist Thomas Gold had argued in his book “The Deep Hot Biosphere: The Myth of Fossil Fuels” that micro-organisms found in oil were possibly produced in the mantle of the earth.

Again, as I stated before, before one can ever trust information that is so widely accepted, one has to find its source. The problem today is that the vast majority of people are just too lazy to ever question the source even though when one finds the source, the source often has multiple ulterior motives for producing its information. As a consequence of this intelligence inertia, the public-at-large has become extremely prone to blindly and very dangerously accepting any information as fact as long as it is printed in a “credible newspaper” or it is spoken on a “credible television news station.” In 1956, M. King Hubbert coined the term “peak oil”. In 1975 Hubbert himself predicted a worldwide crisis in oil by 1999 or 2000. Even though this did not occur, this did not discredit the peak oil theory whatsoever.

Of course, the question that immediately surfaces is this. Why would the banking cartel want you to believe that the oil is a fossil fuel if it is not? Here is the answer. If bankers could successfully sell the world the idea that oil was a byproduct of a process that involved hundreds of thousands or millions of years of anaerobic decomposition of buried dead organisms, then it would become infinitely easier to sell the world on the idea of peak oil and manipulate the price of oil. It is extremely difficult to manipulate the price of a commodity if everyone believes that its supply is abundant. So step back for a second, take a deep breath and let’s consider the logical arguments for/against the fossil fuel theory of oil production and for/against the abiotic theory of oil production. Is not a theory that proposes that the process to form oil would take not decades, not centuries, but MILLIONS of years through the decomposition of fossilized remains a theory that resides on the furthest edge of the spectrum of speculation? After all, testing this theory would take millions of years for this is how long this theory’s process presupposes is the necessary timetable for the formation of oil. Proposing that we know for certain that the process to form oil takes hundreds of thousands or millions of years seems far more absurd to me than the alternate theory of abiotic oil, where scientific evidence supports that the carbon found in the building blocks of oil are not formed from the decomposition of fossilized remains.

In regard to oil, F. William Engdahl continues, “It’s a controlled market — this is not a free market! Energy is probably the most controlled market in the world, food being second.” However, with this point, I respectfully disagree with Mr. Engdahl. In my opinion, money is the most controlled market in the world, with food and energy tied for second.

When considering the possibility that the banking cartel had created a lie about the real oil supply and was responsible for a potentially fake fossil fuel theory, my thoughts inevitably led me to questions regarding the US – Iraqi war. In fact, the US military’s invention in Iraq and the Bush administration’s invention of WMDs to justify military intervention almost seem to validate the Peak Oil theory. After all, why would America need to capture strategic control over the Middle East’s oil supply if oil was not a scarce resource but replenished quite abundantly by an abiotic process? I struggled with this question until I asked myself the following two questions, two questions that should always be asked before accepting the validity of any theory propagated by an authoritative source:

(1) Who is the source of this information?, and

(2) If the information is a lie, who benefits from the lie?

To question (1), most people already know that the Peak Oil Theory originated with M. King Hubbert. But can most people answer the question, “Who was M. King Hubbert?” M. King Hubbert was a geoscientist who worked at the Shell research lab in Houston, Texas. His biography provided by Wikipedia, is as follows:

“M.King Hubbert worked as an assistant geologist for the Amerada Petroleum Company for two years while pursuing his Ph.D., additionally teaching geophysics at Columbia University. He also served as a senior analyst at the Board of Economic Warfare. He joined the Shell Oil Company in 1943, retiring from that firm in 1964. After he retired from Shell, he became a senior research geophysicist for the United States Geological Survey until his retirement in 1976. He also held positions as a professor of geology and geophysics at Stanford University from 1963 to 1968, and as a professor at UC Berkeley from 1973 to 1976.”

A few months back, I produced a video series about the principles of ideological subversion that emphasized the essential role of education in the widespread acceptance of false ideas into the mainstream belief system. Hubbert certainly fits the bill here as he was granted numerous opportunities to spread his Peak Oil theories to the masses through his professorships at the top US universities of Columbia, Stanford and UC Berkeley. After Hubbert’s death, Matt Simmons, a Houston oil banker and decades-long friend of former US Vice President Dick Cheney, was able to leverage Hubbert’s peak oil theory to crystallize a global belief in the limited global supply of oil before he eventually turned whistleblower on British Petroleum during the BP Gulf of Mexico oil disaster, and was discredited himself before dying under questionable circumstances in 2010. Simmons was George W. Bush’s energy adviser, a member of the National Petroleum Council and also a member of the secretive, powerful Council on Foreign Relations.

Thus we’ve established that the oil industry and bankers were the source of the Peak Oil theory as well as the impetus behind propelling the theory into prominent global attention. Now let’s turn our attention to question (2). Who benefited the most from the Peak Oil theory and the War in Iraq? Again, the top beneficiaries of the Peak Oil theory and the War in Iraq were, and still are, oil producers and bankers. Why are bankers at the top of the list of beneficiaries of the war, you ask? It’s a simple equation. The US Federal Reserve creates money to fund the war and lends it to the American government. The American government in turn must pay interest on the money they borrow from the Central Bank to fund the war. The greater the war appropriations, the greater the profits are for bankers.

As I’ve only researched the abiotic theory a little over a month in preparation for this article, I am certainly not an expert on this theory. However, I think I’ve raised enough questions that should raise reasonable doubts regarding the possibility that bankers may just be providing false oil supply numbers to manipulate the oil price for personal gain. With that thought in mind, let’s turn our attention to agriculture.

Food & Money – The Two Commodities Bankers Use to Induce Subservience in the Masses

The price of the world’s food staples, such as rice, corn, wheat and soybeans have recently been soaring. In April, 2010, the media reported that “As rice prices soar toward $1,000 a ton, governments across Asia brace for possible unrest as the region’s staple food becomes less affordable and less available.” Paul Risley, the United Nations World Food Program’s spokesman in Asia, says some of the 28 million “poorest of the poor” it feeds could go hungry because the agency cannot afford to buy many of the world’s staple grains.

Meanwhile, corn, the staple food of Central America and Mexico, also has soared in price in recent weeks. The US Department of Agriculture, in releasing its monthly crop report last Friday, revised its forecast for the US corn crop downwards by 12.6 million tonnes, or 3.9 per cent, to 321.7 million tonnes. According to CBH Group’s wheat trading manager, Chris Brown, the USDA’s revision was the largest monthly revision for corn crop supplies ever. “Never before has the USDA moved the corn yield down by such an amount,” Mr. Brown said. In addition, prices of other staple crops such as wheat and soybeans have also been rising with tremendous rapidity in recent weeks.

On May 6, 2009, I wrote an article on my blog, the Underground Investor, called “Hundreds of Millions May Face Starvation in the next 5-10 Years” to call attention to the ongoing plans of Central Bankers all around the world to severely devalue global currencies.

Back then, I wrote:

“Of the current 6.5 billion people in this world, 50%, or 3.25 billion, live on a daily wage of $2 that has not changed in years, despite the fact that significant erosion in the purchasing power of these $2 over the past decade. In turn, the billions of people that subsist on $2 a day spend $1 on food daily. Simple math dictates that if the price of basic diet staples in the developing world (rice, corn, wheat, etc. but specifically rice) rises to $2 or $3 a day or more, more than 3 billion people will no longer just be hungry, but will begin to die from starvation.”

Though I wrote the above 18 months ago, that article was wholly ignored by all the media sources that regularly reprint my articles. Today, the situation I warned of above, is in essence what is beginning to materialize. Though mass starvation has not yet happened today, it could become a serious problem in the next five years at the rate Central Banks are devaluing the world’s major currencies. Today, the Food and Agriculture Organization of the United Nations estimates that 925 million people go hungry every single day. This alarming number is essentially the number of people on the fringe of survival and a fair estimate of the at-risk-for-starvation population if prices of the world’s basic food staples continue to soar. Today, the major media has just started to label the global monetary crisis as a “currency war” with recently dated origins. But that simply is not reality. The currency war between East and West has been occurring behind the scenes for a minimum of several years now. Nothing as severe as a global monetary crisis develops overnight and the world’s leading economies have been aware of this currency crisis for many years now.

So what is the real cause of soaring food prices? In Thailand, the leading rice-exporting country in the world, Korbsook Iamsuri, the secretary-general of the country’s rice exporters association, stated, “Don’t forget that we grow twice as much as we need domestically, that’s why we have so much to export. And all of a sudden everything’s gone, so I do not believe that that is the actual situation we’re facing.” Mr. Iamsuri blamed much of the soaring rice prices on farmers’ hoarding behavior which he stated was creating an artificial supply squeeze. Yes, it is not just the banker’s fault that food prices are rising so rapidly. Drought, flooding, inclement weather conditions, greed-driven hoarding behavior of traders and producers, rising input prices spurred by rising oil prices, and crop failure in some regions of the world all contribute to rising food prices. However, some of these other determinants of rising food prices, like rising oil prices and hoarding behavior, are also indirectly attributable to banking monetary policies. But what about the supply numbers of staple crops? Are they trustworthy? Since we have learned that government supply statistics regarding the commodities of gold and oil are 100% unverifiable, should we blindly believe the “official” government statistics regarding crop supplies? I suggest that we should not.

Remember the two questions that we should always ask before accepting the validity of any theory propagated by an authoritative source:

(1) Who is the source of this information?, and

(2) If the information is a lie, who benefits from the lie

Today, global rice stocks have been reported at a two-decade low. And corn prices surged again on Friday after a new report from the United States Agriculture Department claimed that this year’s corn crop would be smaller than expected. December corn futures on the Chicago Board of Trade reached a high of $5.84 a bushel in trading on Tuesday, October 12, an astonishing 70% increase in prices from the $3.43 a bushel price just 3 ½ months earlier. Even though CBH Group’s wheat trading manager, Chris Brown, made the USDA forecast for the coming corn harvest sound catastrophic – “Never before has the USDA moved the corn yield down by such an amount” – the REALITY of that soundbite designed to move corn prices higher, is much less dramatic. The USDA forecast, on a year-over-year basis, only forecast a 3% drop from the prior-year record level corn harvest. Thus, the true question becomes, “How can a projected 3% drop from a RECORD crop yield produce a 70% spike in the price of corn futures in about 100 days?

Again, if we look at the sources of food supply numbers, we uncover some answers. Industry trade organizations release the overwhelming number of estimates that warn of short or waning food supplies. And with all other commodities we’ve discussed in this article, if these supply estimates are untruthful, the industry and bankers are the parties that benefit from these numbers the most. I am not saying unequivocally that numbers regarding the world’s food supplies are lies, but I am saying that we need to consider this possibility. Many of the numbers that move the prices of the world’s agricultural commodities are based upon estimates of future yields, that when realized, reveal the estimates to be wildly incorrect. Furthermore, not only do bankers profit tremendously from volatile price swings in the world’s leading crops through participation in agricultural futures markets, but bankers also tremendously benefit in a secondary manner that is hidden from the public. If the public believes that soaring food prices are simply due to bad weather, bad yields and alternate uses of food (i.e. corn produced for ethanol), by drawing attention TO these factors as the major cause of rising food prices, bankers successfully draw attention AWAY from what I believe is, and will continue to be, the largest component of higher food prices by an overwhelming margin- the Central Banking monetary policies of devaluing global currencies.

If bankers, through a massive propaganda campaign, can get people to forget about the fact that food prices are soaring because they are devaluing all major global fiat currencies, then they are likely to avoid blame in what I see as an impending and inevitable global food crisis. Yes, I know that bankers are not the ONLY reason food prices are soaring and I’ve stated other factors that contribute to rising food prices above. But even when they aren’t directly responsible for rising food prices, they often are still indirectly responsible. For example, the greedy hoarding behavior of commodity traders or farmers is almost entirely driven by the recognition that food prices in the future will be much higher due to the Central Bank’s current campaign of massive currency devaluation. Without the reality of currency debasement, the different players involved in setting global food prices (which also includes bankers) would not be hoarding food supplies right now that could instead be feeding people at cheaper prices. And Central Banking currency devaluation policies encourage hoarding not just with agricultural commodities, but with many other commodities as well. For example, when oil traders anticipated huge swings higher in oil prices, they have been known to rent massive supertankers to buy and store oil cheaply in order to sell it at much higher prices later.

Currencies – Debt or Asset?

Since I’ve written about the commodity of currencies prolifically for more than five years now in the public realm, and because most people already recognize that 98% of paper money does not exist but as a digital representation in our physical world, I am going to keep my commentary about fiat currencies quite sparse. By definition, a Central Bank exists to manipulate currency valuations and to prevent free markets from operating. The two statements that I reprinted below are the only two statements you need to read to understand that bankers have created our current global monetary system for the sole purpose of manipulating and controlling the wealth of nations.

“If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.” – Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, 1935.

In 1942, Federal Reserve Chairman Marriner Eccles testified before the House Committee on Banking and Currency, that “if there were no debts in our money system, there wouldn’t be any money.”

As the above statements were respectively issued in 1935 and 1942, it is obvious that the goal of bankers, for decades and centuries now, has been to destroy and control people through the issuance of money as debt. If, after reading the above statements, you are still fuzzy over the rationale why Central Bankers have 100% complete control over the purchasing power and store of value of those digital credits in your bank account, you may watch this video about the harmful effects of currency debasement to lend some clarity to that issue.

Formal Education – Essential…for Brainwashing Only

I will appropriately conclude this article about the banker-created Empire of Illusion with a discussion of how even the institution of education has been transformed into a commodity. This month, Bloomberg Businessweek reported that “a third of the top 30 U.S. business schools became less selective when admitting applicants to their full-time MBA programs in 2010.” Consequently, with education, when the going gets tough, the tough get, well, they get easier. Academic institutions are now willing to compromise their reputation and standards and admit less qualified candidates in an effort to keep their bottom-line numbers intact.

If you are a recent high school graduate considering entering university today, a young college graduate considering entering an MBA program today, or a parent with a child that is facing either of these two scenarios, as you conclude this article, it should be clearly apparent by now that:

(1) A young adult will never learn the mechanisms behind how the real business world operates within the confines of a traditional academic institution, and

(2) Given today’s economic environment, postponing or never pursing a formal academic degree may be the smartest choice one can make.

The Final World

I have always said, both privately and even publicly on my company’s website, that understanding fraud will contribute much more insight to the world of investing than the study of any “official” numbers and statistics released by corporations and governments. Today, more than ever, I believe that an understanding of the fraud and rigging games of bankers is not only essential to anyone interested in investing in capital markets today, but that it is also 100% necessary to survive the growing global monetary crisis during the next 5 to 10 years.

About the Author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent investment research and consulting firm dedicated to helping Main Street beat the fraud of Wall Street. JS earned his undergrad degree from the University of Pennsylvania and a double Masters in Business Administration and Public Policy from the University of Texas at Austin. However, JS credits the bulk of his knowledge about how the investment industry really works not to these two institutions of academia, but almost solely to his two decades of self-study. Dissatisfied with the rampant corruption and fraud he witnessed in the commercial banking & investment industry, JS permanently walked away from Wall Street in 2005 to start his own firm. Since launching his Crisis Investment Opportunities newsletter in 2007, JS has helped investors achieve more than 137% returns from June, 2007 to October, 2010 (in a tax-deferred account).

Republishing Rights: The above article may be reprinted on other websites as long as all text and links remain as is, including the author acknowledgment above.

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Feb. 7, 2007 – Investors Should Apply the Rule of Shopping 101 to Buying Stocks
Jan. 3, 2007 – Will the 2006 Year End Rally Continue into 2007?
Dec. 21, 2006 - Perception Can Overrule Reality in Driving Behavior but Reality Will Overrule Perceptions in Driving Outcome
Nov. 30, 2006 – The Recency Effect Hurts Investment Decisions
Nov. 2, 2006- Canadian PM Stephen Harper & Hungarian PM Ferenc Gyurcsany – the More Things Change the More They Stay the Same
Nov. 2, 2006 – Irrational, Not Rational, Behavior Often Drives Markets
Oct. 24, 2006 – The Financial Media are Like Bad Weatherman
Oct. 8, 2006 – The SmartKnowledgeU Reader’s List
Oct. 4, 2006 – Hungarian PM Ferenc Gyurcsany: We LIED Morning, Noon, & Night!
Sept. 26, 2007 – Move Over Harry Potter! The Deceptive Wizardry of Fund Managers
Sept. 17, 2006 – When it Comes to Investing, You Get What You Pay For
Sept. 16, 2006 – Why Do People Believe One of the Dumbest, Most Flawed & Deceptive Measures of Economic Conditions?
Sept. 13, 2006 – Why Book Smarts Won’t Help You Build Wealth
Sept. 10, 2006 – Investment Psychology 101
Aug. 24, 2006 – To Become Wealthy, Abandon Widespread Beliefs About Investing
Aug. 18, 2006 – Following Mainstream Media Will Lead You Down a Disastrous Investment Road
Aug. 3, 2006 – Following Short-Term Fluctuations Will Create Poor Investment Decisions

Options Investing (10 articles) – We don’t discuss options much here but occasionally, if there is a compelling play, we’ll write an article or two.

Water Investing (1 article) – Read articles about investing in water as a commodity as the world’s fresh water supply becomes more scarce.

The Zen of Investing (42 posts) – Read articles from our resident martial arts expert regarding how understanding principles of martial arts can make you a much better investor. A combination of “The Art of War” and “The Art of Investing” if you will. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Technorati Tags: investment blog, investment strategies, dollar crisis, financial crisis, oil crisis, stock market crash, howto invest gold, recession proof, best ways to invest, Wall Street bailout

If we look at the below graph of the USO (US Oil Fund), at first glance, it appears that the deflationists have been correct about their assumptions of a worldwide slowdown causing demand for oil to plummet. However, if we recognize deflation for what it is, an appreciation of the currency, given the most recent 12% figures of US monetary supply growth (as determined by www.shadowstats.com ), the conclusion of US dollar heading for sustainable appreciation seems downright foolish. Thus if deflation has little or nothing to do with oil prices being so low at less than $35 a barrel right now, what is the real reason for the oil price collapse? Investigating the battle behind the scenes of this growing monetary crisis will yield the answers.

At the end of last year, Bloomberg reported that “Gulf Arab leaders approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy. The accord must now be endorsed by the national governments of the Gulf Cooperation Council, the group said in a statement after its leaders met today in Muscat, Oman’s capital. Within the six-nation GCC, Oman has pulled out of the process.”

Throughout history, Central Banks have done nothing but create massive distortions in real estate markets and stock markets. It is a total myth that Central Banks contribute to the stability of economies. Just because the majority of people hold a certain belief does not make it a fact. The overwhelming majority of investors that put their money in Madoff’s investment fund and now Stanford’s investment fund believed at the time that these funds were legitimate. Their beliefs did not make it so. Perception is only king until reality surfaces and crushes an erroneous perception. Likewise, today, the overwhelming majority of people believe that Central Banks play a key role in ensuring economic stability and in contributing to a sound monetary system. Such a belief, even if it is still held by the majority of people today, is the furthest thing from the truth, and when the monetary crisis deepens in 2009 and 2010, this myth will crumble as did Madoff and Stanford.

The majority of Central Bank policies enact more harm than good the majority of time, but here is why the development of a singular Persian Gulf Central Bank is so important. For the past couple of years, the Persian Gulf nations have publicly declared their loyalty to the US dollar, with key government figures even stating that no finance minister should ever make any public declarations of a loss of faith and confidence in the US dollar due to the grave negative ramifications of that such comments could possibly trigger. However, their announcement to form a regional currency signals a significant change in their public stance even if their private stance has been drastically different for some time now. The Persian Gulf nations have now publicly made it known that they collectively wish “to stop pegging their currencies to the dollar and implement independent monetary policy.” All of the GCC (Gulf Cooperation Council) states except Kuwait still currently peg their currencies to the dollar and still let the U.S. Federal Reserve lead their interest rate policies. However, this is set to change.

The Gulf Nations plan to form a Monetary Council by December 12, 2009, and then a Gulf Central Bank that would include Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman. Their goal is to form a unified regional currency by 2010. Last year, five of these six countries reported inflationary rates higher than 10%. Besides the fact that these inflation rates seem to indicate that the GCC states calculate an inflation rate that is much more accurate than the Alice in Wonderland fantasy inflation rates the US Government continually publishes, these rates more importantly indicate how significantly their economies are affected by their maintenance of a peg to the US dollar.

Though there is much skepticism on whether the Gulf Nations can indeed accomplish a Central Bank by 2010, I 100% guarantee you that their desire to form a unified regional Gulf currency with the prime purpose of enabling them to “stop pegging their currencies to the dollar” fully and immediately garnered the attention of the US Federal Reserve, the US Treasury and the US government.

Such decisions can never be made in a vacuum and they can only be made with enormous political consequences. Such is the nature of the political game. Qatari Prime Minister Sheikh Hamad Bin Jassim Al Thani said that the emirate is “studying all options” in relation to the dollar-peg. “As a small country we cannot float our currency… it has to be tied,” he said. But the question is this, “Tied to what?” If they don’t want to be tied to the US dollar, the Euro, the Pound Sterling and the Yen, the other three major world currencies, certainly offer no more attractive options as pegs.

A logical alternative then would be to peg their regional currency to gold. If this alternative is being considered, certainly the Gulf Nations could have quietly been converting their massive holdings of hundreds of billions of petrodollars held in their Sovereign Wealth Funds to hard assets such as gold. The nature of holdings in Sovereign Wealth Funds are not publicly reported, and for this reason, GCC states tend to hold the bulk of their country’s surpluses in Sovereign Wealth Funds and not on the balance sheets of their Central Banks. If this is indeed happening, what would be the most likely US retaliation for considering such a scheme? To collapse oil prices, as these nations surpluses and economic well being depend upon their oil profits. Though these links will never be made in stories reported in the mainstream media, I guarantee you that there is a direct link between the monetary directives of Gulf Nations and the price of crude oil in the Nymex futures markets that determine the price of crude oil to a much higher degree than anything that has to do with the level of oil inventories and the level of global demand.

For two years now, the origins of this economic crisis have been reported incorrectly. Though certainly big banking institutions and Wall Street firms acted fraudulently and unethically for many years, they were only enablers of an unsound monetary system. For almost three years now, I warned of almost every major downturn in global stock markets on my blog due to my understanding of this as a monetary crisis. In three months, when the next wave of mortgage resets afflicts not only the subprime sector, but Alt-A and prime mortgages in the US and housing problems resurface, a new “housing crisis” will be reported. Understanding all of these extreme price movements in real estate and commodity markets, however, can be accomplished by first studying and understanding the deepening monetary crisis.

Technorati Tags: oil, WTIC, US dollar crisis

In this article, I will debunk the many articles that attribute inflation to rising prices and rising oil prices to nefarious OPEC nations that squeeze production and gouge Western nations. With the use of four charts, I can explain most succinctly what is the predominant factor in contributing to rising oil prices. Just as inflation causes rising prices and not the other way around, the falling dollar is the greatest single determinant of soaring oil prices, not speculators and not a shortage of supply. Sure, these other factors contribute to rising oil prices and shortage of supplies will certainly drive oil prices even higher in the future, but they are not THE main contributor today despite all the articles to the contrary. That honor goes to the falling dollar. To understand, take a look at the four charts below.

I have plotted the USO (AMEX), the United States Oil Fund, LP against gold, silver, the euro and the U.S. dollar for the last 3 years. The United States Oil Fund, LP (USO) invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges, so generally it acts as a very good proxy for the price of crude oil (and gas).

If we look at the USO plotted against fiat currencies, it indeed appears that the price of oil is soaring. The USO has soared about 52% against the Euro in the last 3 years. On any terms, this is quite a hefty rise, but even this hefty increase pales in comparison when we observe the 3-year chart of the USO priced in U.S. dollars . In U.S. dollars, the USO has soared by more than twice the rate it has against the Euro at 115%. However, because both the Euro and the Dollar are fiat currencies backed by nothing but the full faith and credit of governments, they theoretically can both be debased into worthlessness.

So now let’s price the USO in gold and silver for the past three years. When we do so, a markedly different picture emerges. The USO, over three years, despite having soared by 52% and 115% when respectively priced in Euros and Dollars, has incredibly dropped in value by 11.5% over the same time period when it is priced in gold. This means that oil would actually be cheaper than its price from 3 years ago were we to price its cost in ounces of gold. In other words, if the dollar was on a true gold standard today, nobody would be talking about soaring oil prices.

And what about when priced in terms of silver? If we price the USO in ounces of silver, we see from the below chart that the price of the USO has plunged a monumental 25% in price over the last 3 years.

So what does this tell us? In very simple terms, when goods are priced in stable currencies, their prices remain much more stable as well. When goods are priced in unstable, highly inflated currencies, then their prices soar primarily due to the significant debasement of the currency it is priced in. Furthermore, as I explained in this previous article, the debasement of currency often gives rise to an illusion of wealth creation while in reality, it actually destroys real wealth.

Though many others wish to confuse you with complex algorithms that include 50 different variables that determine why prices rise, in our current environment, dollar debasement is the top contributor. Yes, I do understand that it REALLY is not that simple, as the dollar has risen in recent weeks and so has oil, but you get my point, right? I’m not here to discuss other factors such as the spreads between futures and spot prices which move markets and what not, but just to discuss a very important point that I never see discussed in the mainstream media. So if oil had been priced in Euros for the past 3 years, analysts would only now begin to start discussing rising oil prices. And if the world had been forced to keep large reserves of silver and gold for the past 3 years to pay for their oil, well, the only discussion that would be happening today would be within the meeting rooms of OPEC as they tried to figure out how to increase diminishing profit margins from falling oil prices.

Of course, one could argue that were oil priced in gold from 1980 to 2001, oil would have soared in price as gold spent 21 years in a bear market during those years. However, were the U.S. dollar backed by a true gold standard during these years, the price of gold would not have plummeted either (this analysis is much too complex for the scope of this short article). So when people say that oil is heading towards $150 to $200 a barrel, this prediction, though they will never admit it, is primarily based upon the untenable situation of the dollar, not the dwindling supply of oil as they state. In terms of gold bullion, the price of oil will most likely only get cheaper or remain stable in the next few years. And due to continuing debasement of the dollar, we are highly unlikely to see oil prices retreat past $80 a barrel anytime in the foreseeable future.

I have always found many stories reported in the media to be humorous. For example, this past month, recent IMF officials stated that rising prices of food and oil are creating raging inflation rates worldwide that are quite worrisome. This is comparable to blaming a destroyed orange crop in Florida for creating frigid temperatures instead of correctly attributing the frigid temperatures to the destruction of the orange crop. Today, a news article out of Washington stated the following: “US President George W Bush will discuss rising oil prices and subsequent effects on global economies with Saudi Arabia’s King Abdullah later this week.” The report further stated that “A White House spokeswoman also said that Bush would raise the issue of how high oil prices are draining the world economy.” While the debasement of the dollar is not the only contributing factor to rising oil prices, of all the factors, including dwindling supply, it is the largest singular contributor.

So again to use my analogy of the orange crops, singling out supply and production rates as being the most problematic factors in rising oil prices would be similar to discovering that 5% of all oranges destroyed by severe weather were also infested by bugs and then calling on a pesticide manufacturer to develop better pesticides as the solution. Of course, the best pesticides in the world still wouldn’t have saved the other 95% of oranges from being destroyed. In conclusion all the negotiation in the world won’t stop rising oil prices. Only a strong currency will stabilize prices and effectively moderate rates of inflation.

Technorati Tags: USO, oil, gold, silver, dollar crisis, inflation properly explained, causes of inflation

Steve Forbes, publisher of the noted Forbes wealth magazine, went on record at the Las Vegas Gold Show that oil prices would reach $35 a barrel in 2006. That certainly was a contrarian viewpoint at the time, and obviously, it never happened. Although I saw no less than 5 headlines in major financial publications at the beginning of this year that stated $40 oil was inevitable and some that even called for $30 oil as inevitable, I stated “I don’t think oil will go much below $50 even though it is descending right to the verge of $50 and many are stating that $40 oil is a given now.”

This wasn’t the only time I stated that oil was heading higher from January either even as investment newsletters and experts screamed at the time that oil was definitely heading to $40 a barrel and most likely $30 a barrel. Most people, including you, probably have long forgotten those predictions from only several months back, and the investment newsletters that made these predictions thank you for forgetting their predictions as well. But here is something that I’ve been stating for over a year now as well though most people, including prominent investors, have yet to grasp this. You just can’t study finance and expect to be a successful investor. You must understand politics as well.

Even with a cursory review of the oil industry back in January there were political reasons why I was confident that oil was heading higher from January instead of continuing its slide downward as many oil analysts predicted at the time. The reason, quite simply was the inevitable continued weakness of the U.S. dollar, though in the limited space of my standard blog entry, I’ll explain slightly further what I mean. While behind the scenes, the U.S. government no doubt was striking secretive deals to ensure that OPEC would continue selling oil mostly in U.S. dollars and not convert to massive petroEuro sales. If OPEC was going to agree to keep accepting rapidly weakening dollars as payment for their oil, I’m guessing that they were compensated for agreeing to do so with an allowance to set higher oil prices.

Trust me, if the dollar was strong, oil prices (and possibly gas prices too) would not be nearly as high as they are now.

Sure, I’ve heard the arguments made by rose-tinted glasses-wearing oil analysts that traders in oil futures now drive prices and that OPEC has very little control in setting oil prices in today’s markets. However, if some official industry spokesperson has not spoon fed an official “line” for analysts to incorporate into their analysis, the great majority will fail to grasp the meaning of anything outside of the official stance. And yes, I understand that many factors besides OPEC’s production rate such as short term crimps in supply and geo-political concerns cause oil futures to significantly fluctuate in the short term. Yet, I believe that various political interests have their hand in the pot enough to drive the price of oil up or down in the long term depending on the agreements they strike among themselves to serve their purposes.

Today, the first monkeywrench thrown into today’s oil price equation is Kuwait’s recent action to unpeg its local currency, the Kuwaiti dinar, from the U.S. dollar. This certainly is a vote for a belief that the U.S. dollar will continue to fall in strength long term. The real question at stake is this: Will Kuwait’s neighbors, specifically Saudi Arabia, the UAE, and Oman follow? Iran is already there, but will other countries supposedly friendly to U.S. interests follow suit? Although Kuwait’s neighbors were quick to issue statements that they will not follow Kuwait in unpegging their currencies from the dollar, I would not place a huge bet on these statements as governments often say one thing and then just months later, do the exact opposite of what they promise.

After all, most finance ministers from Middle Eastern countries have been quite open about their desire to significantly increase their central banks’ reserve levels of gold, strategies that are more aligned with an eventual unpegging of their local currencies from the U.S. dollar than a continuing peg. If other Middle Eastern countries unpeg their local currencies from the dollar, look for oil prices in America to start falling as the U.S. will have less reason to keep prices artificially high to keep their Middle Eastern partners happy.

That said, the above equation is never as simple as it might appear on the surface. Many of the wealthiest oil-rich Middle Eastern countries depend upon the U.S. military for security so such a move to decouple their currencies from the U.S. dollar could be countered with a threat to cut off any military protection in the future. Furthermore, although all of the media’s attention is squarely focused on China’s actions regarding its dollar denominated reserves today, the Middle East’s actions are just as important as China’s. The only reason the media doesn’t speak of the massive petrodollar reserves of the Middle East is because the bulk of these reserves are often allocated not to Central Bank reserves but to secretive and independently managed investment authorities. In the UAE, the Abu Dhabi Investment Authority, not the UAE central bank, determines how the bulk of petrodollar reserves are spent. Saudi and Kuwait also maintain separate investment authorities which often manage sums 20 times greater than the amount of reserves managed by their central banks.

These Middle Eastern investment authorities don’t publicly relay any information about their holdings either, so the media just ignores them as if they don’t exist. Trust me, the U.S. government has been drilling these investment authorities as to how they are spending their petrodollars and most likely ensuring that many of these petrodollars are re-invested in the U.S. economy as part of the deal to set higher oil prices in the United States. So for now, this shell game is all good. The U.S. charges abnormally high oil prices, Middle Eastern countries make a killing on petrodollar profits, and in turn the U.S. encourages them as part of the deal to invest much of it back into U.S. stock markets which keeps markets rising. Everybody’s happy right? Right, but only so long as everyone that contributes to the oil price equation stays in line. Kuwait is the first to step out of line.

Although many people will blow off Kuwait’s actions and not attach as much significance to Kuwait’s actions as they would if Saudi Arabia had been the perpetrator, Kuwait’s decision to uncouple its currency from the U.S. dollar IS significant for a number of reasons. Number one, when Iraq under Saddam’s leadership invaded Kuwait in August, 1990 in an effort to take control over disputed oil reserves, the U.S. military came to Kuwait’s rescue. Despite this, Kuwait made a decision to counter rising inflation in its country by decoupling its currency from the anemic U.S. dollar. Inflation has been raging in other Middle Eastern countries as well due to rapid economic development and the continuing peg of local currency to the falling dollar. Some of these countries will soon also have to make the difficult decision of continuing to be a “good soldier” in the oil price equation or to stray from the official stance as Kuwait did to tackle more pressing domestic economic issues.

So again, to get to $30 oil, it’s not just a matter of supply and demand and Peak Oil Theories as the media reports, it’s about politics most of all. Even when UAE finance minister Sultan bin Nasser Al Suwaidi stirs the gold market with comments that the UAE will convert 10% of their Central Bank reserves into gold, the more important factor is not the planned $2.5 billion purchase of gold for their Central Bank but this. What if the Abu Dahbi Investment Authority follows suit with a 10% purchase of gold from their estimated 500 billion dollar pool of money? How would such a political move affect their relations with the U.S. and the future price of oil?

Finally, the price of oil has much larger implications for the U.S. economy as inflation indexes drive U.S. Federal Reserve decisions about interest rates, which in turn drives the behavior of the economy and stock market. Although the Federal Reserve continues to successfully dupe the American public about real inflation by reporting a “core” inflation that excludes the cost of energy and uses an inaccurate manipulative method of weighting components to manufacture inflation levels to their desired levels, I do believe that they calculate true inflation levels that they don’t release to the public so that they can make their decisions based upon real figures. If real inflation in the U.S. keeps increasing, then this may spur the U.S. government to renegotiate the terms of their oil purchases from OPEC nations as well. In conclusion the price of oil has many more moving parts than just supply and demand and frenzied predictions of Peak Oil.

Technorati Tags: peak oil, OPEC, politics and stocks, dollar crisis

The overwhelming mistake I see investors make in regard to understanding the intricate relationship between politics and stock picking are two-fold. One, they let nationalistic feelings blind them to the cold realities of war and economics and thus, make poor investment decisions based upon loyalty to a hardline government position rather than anything remotely based upon reality. They feel that if they disagree with the government stance that they are being a disloyal citizen instead of recognizing that as a higher primate, they have a brain and are thus entitled to use it.

Perhaps a simple story can best illustrate my point. Before the Mexican-American war, much of California as well as Southwestern America was Mexican territory. If you were born in what is now the lower half of California before the Mexican-American war, you would have been a Mexican and not American citizen, and most likely, though your brain, flesh, and organic material would be exactly the same, your politics as a Mexican would be dramatically different than that of an American. Or what if today, the U.S. Mexican border moved south by 10 kilometers and hundreds of thousand of Mexicans automatically became American citizens?

Do you think that their politics would change overnight just because they had become newly minted U.S. citizens? Most likely not. But had they been born American, most likely yes. Because something as arbitrary as an imaginary borderline drawn up by a government can sometimes polarize the same person into two completely different mindsets depending upon the date of his or her birth, can you now see the foolishness of stubbornly defending policies that are promoted by your government rather than critically examining these policies for falsehoods or truths before making a determination of their validity? And though I am American, I profess this statement as applicable no matter what country you live in.

I only write the above to give some background to an earlier blog I wrote that touched upon the importance of understanding politics when making investment decisions. In an earlier blog entitled “How to Navigate the Minefields of the Investment Industry Information Highway”, I wrote that even though I did not consider myself an expert in oil by any means, my understanding of politics led me to believe that oil would not drop below $50 this year even as the energy “experts” were writing articles about the inevitability of $40 oil by mid-year 2007 and eventually $20 oil. Back then, when I read these articles, I was shocked at the absolute absence of any import given to the role of politics in the determination of oil prices.

Again, these experts merely discussed how new discoveries of huge oil fields were happening, how better technologies to access deeper oil fields were being developed, and that all of this would drive oil prices down. As we all know by now, any “official” statistics about oil reserves, GDP, inflation, etc. are hardly trustworthy and are constantly manipulated to serve the purposes of those that release such statistics instead of being rooted in any kind of reality. So to base any type of projections solely on these numbers is bound to be fallacious.

That was the first reason I believed such predictions, though they were widespread at the beginning of this year, were such nonsense. The second reason why I believed that the rationale given for $40 and $30 oil in 2007 was such nonsense was that none of these “experts” predictions mentioned politics at all. If they had included politics in their analysis and the political analysis made sense, then I would have given these analyses much more legitimacy. In fact, if ever there comes a time when we see $30 oil, trust me, politics will be heavily involved. However, all of these predictions were based upon fundamental and supply & demand analysis alone. In fact, if any of the analysts merely looked back in time to 1973 then they would have understood that it is a moot point to predict the future of oil prices without discussing the implications of politics.

After the Yom Kippur War in 1973 in which Egypt and Syria attacked Israel, Egypt and Syria, the Arab gulf nations hiked oil prices by 70% and imposed production cutbacks in response to the U.S.’s assistance to Israel during this war. Eventually, Saudi and the Arab gulf nations imposed a total embargo on oil shipments to the U.S. for four months, a move that causes oil prices in the U.S. to skyrocket, hour long lines at gas stations, and panic in the U.S. economy although the embargo lasted little more than a mere five months.

In any event, though an extreme example of how oil prices could be fixed by OPEC nations under extreme circumstances, it would also be extremely naive to believe that after 1973, OPEC nations never colluded to fix prices either as concessions to requesting nations or to guarantee certain levels of revenues and profits to producing member states. And this is precisely the reason that most investment analysis models that rely on number crunching alone without the texture of politics will never properly analyze the future of an asset class or stock. Learn your politics and I guarantee you that your ability to assess investment opportunities will increase ten fold.

Technorati Tags: politics and stocks, Yom Kippur war, oil, OPEC, China tariffs

Back when oil was testing the $50 floor, one newsletter touted $30 an barrel oil, and as proof, stated the following agreeable testimony:

Steve Forbes stated at the end of 2005: “You’re going to see oil down to $35-$40 a barrel. It’s a huge bubble, I don’t know what’s going to pop it but eventually it will pop — you cannot go against supply and demand, you cannot go against the fundamentals forever.”

Kenneth S. Rogoff, Professor of Economics at Harvard University : “I predict that we will see at least one period of $20 oil at some point over the next ten years.”

Philip Verleger, an oil economist who’s gained a reputation for early warnings on oil-price swings: “If pension funds decide they don’t want to take the risk anymore and bail out, we could see prices go a hell of a lot lower; I think prices could dip below $30. It really depends on what these pension funds do.”

Granted, this person predicted $30 a barrel oil by 2009 and we’re still a long ways away from 2009 but just two months ago, when oil dropped below $55 a below, this person penned an article entitled “$30 oil. Who is crazy now?”boasting that, in October, 2006, he had predicted $30 oil was coming. Maybe the price of oil will drop significantly at some point in the future, but obviously the title of the article implies that the drop to $30 was imminent. Even though this person maintains that he is and was predicting $30 by 2009, if oil drops to $55 a barrel and you say “Do you believe me now?”, that’s a ridiculous statement to make if you’re saying that the $55 a barrel price in January, 2005 is proof that a prediction you are making for 2 years down the road is right. The only reason you would title an article “$30 oil. Who is crazy now?” when the price of oil dropped significantly is if you truly believed that oil was heading to $30 a barrel in several months, not two years down the road.

And this is exactly the problem that I have with so many investment newsletters that are intended to sell subscriptions. Do I care that Steve Forbes predicted in 2005 that oil was going to $35 a barrel? Do I care that a Harvard economist named Kenneth Rogoff predicted that oil will go to $20 a barrel sometime within THE NEXT 10 YEARS? How do these predictions help anyone build wealth? These predictions were somewhat based upon the opinion that the Peak Oil Theory was wrong, and that new exploration technology would continue to lead to significant discoveries of heretofore unknown oil reserves. In fact, last November, in my blog, The Myth of Peak Oil is Melting Away…Literally, I wrote “But the reality is that many people are lazy and would rather have someone else tell them what to think. In December, 1999, a great majority of people all over the world believed in Y2K because the media made us believe in its catastrophic inevitability – a catastrophe that never happened. I believe Peak Oil is the same.” Yet despite this belief, I still blogged on January 11, 2007, in The Real Deal About Gold and Energy, “That’s why I just can’t see oil going to $30 a barrel as many are predicting now. In fact, I don’t think oil will go much below $50 even though it is descending right to the verge of $50 and many are stating that $40 oil is a given now.”

For long-term predictions to be worth anything to investors, they have to be solid without involving any fundamental changes in the reasons that support that prediction. Many analysts will say , well no one can predict geo-political tensions that arise and how they might affect financial markets. Again this is a lot of bull. Just because you don’t have knowledge about politics doesn’t mean that predictions for how political tensions will affect financial markets can’t be made. People equate their own ignorance about a subject material with “it can’t be done!” instead of taking a pro-active approach, learning what they need to know, and stating, “it can be done!” That person quoted above will never convince me that the pension funds have more control over setting the price of oil than oil cartels like OPEC and the threat of war.

All SmartKnowledgeU™ Members, if you have read the modules that I recommended you read right away upon joining, should know why I made that statement in January. By now you should know that politics significantly affect financial markets. In fact, be sure to stay tuned for your 1st Quarter update that you will receive soon because I’ll have some updated views on what is going on in Iran and what type of reaction is likely to be sparked by their sale of oil in Euros. So the question is this. Is predicting that a volatile commodity like oil will hit a certain price point sometime within the next 3 years or 10 years of any value to anyone? If oil goes to $75 a barrel in April, and you started planning for $30 oil in January, obviously your investment choices are bound to have dug you a deep hole that you must now climb out of.

I’m sorry, but if oil hits $75 or $80 a barrel on the way to $30, that is not just a temporary spike in an ongoing falling trend on the way to $30. If oil hits $75 a barrel that’s a 47% spike higher from about $51 a barrel in January, and a 47% increase is not a short-term blip in a major trend. Actually what’s happened already is not a short-term blip in a major trend. Here’s a news bulletin for the thundering sheep herd. Political confrontations, unless they are manufactured by the media, which does happen on occasion, are not, and should not, be considered as short-term blips. That’s why all SmartKnowledgeU™ Members understand that they must understand politics to make wise investment decisions.

The confrontations between sovereign states in the political realm do cause fundamental changes in the behavior of commodities. Politics and governments have always been intricately linked to the price movements of commodities and stocks, and as long as investors fail to realize how these links operate, they will continue to make poor investment decisions based upon surface financial media news that they track. To draw an analogy for that oil prediction above, that’s like making a $850 an ounce prediction for gold as a long-term target, then having gold drop 47% from its present price of about $660 an ounce to $350 an ounce and telling people that this downward spike in price was a short-term dip in a longer upward trend.

But perhaps this isn’t even the best analogy because one must consider the historic range of commodities when deciding how to interpret recent price movements, not to mention inflation as well. So oil has traded somewhere between $50 a barrel and $78 a barrel for the past couple of years so the current $16 spike in price since January from below $51 a barrel to $67 a barrel represents 57% of its trading range for the past couple of years. Gold has traded between about $411 an ounce to $720 an ounce since 2005, so comparatively speaking, $176 would represent 57% of this $309 trading range. So perhaps if gold fell from its present price of about $660 an ounce to $483 an ounce and then maintaining that such a hypothetical dip in price was part of an ongoing upward trend would be a closer analogy to the oil claims above.

Finally of course, to be really accurate, one would need to examine the inflation adjusted prices of these commodities as I have often blogged about the inaccuracies of many statements made in the financial media because of their failure to consider inflation adjusted indexes and prices. However, in this case, since I’m only discussing the past 2 years, I’m going to concede that this argument would need to be adjusted for inflation without actually taking the time to do so due to the nominal value that such adjustments would actually add to my argument.

Now that oil futures hit a six-month high this week, this same publication that employs the person that touted $30 oil just three months ago recently pronounced that $4 gas is on the way in the U.S.! They stated, “Simply put: while demand will not be significantly reduced and supply cannot be significantly increased, supply can be reduced. All it will take is one crisis or even the intimation of a crisis, and oil and gas prices will spike.” So what happened to $30 oil going to hit before $60 oil? Now that it’s not convenient to make that statement anymore, future oil spikes higher instead of downward is the much better bandwagon to jump on now.

Granted, these conflicting articles were published by different persons within the same company, but they still were published by the same company. And this is typical of the news that you see originating out of most financial media. First we had the story of Jim Cramer feeding nonsense to Wall Street Journal writers to push the ideas that would line his own pockets with money. In addition, we now have investment publications and media publishing whatever stories will attract more readers and thus more advertising dollars or con more subscribers into buying subscriptions. And for what? So they can receive more bandwagon news that will never help them build wealth?

That’s why all Underground Investor readers have known for a long time now that it is foolish to believe that you will ever build any real wealth if you follow the mainstream financial media and the advice of the majority of investment newsletters. Note that we say “the majority” because we do believe that there are some solid ones out there, but similar to our beliefs about superior financial consultants, we believe the percentage of solid ones are less than 1% of all the ones in existence. Everyone has their own agenda, and the agenda of most services in the investment industry is almost never to ensure that you, the investor, becomes wealthy. This is why you often even hear that Chief Investment Officers at major firms spout widely divergent views on the same subjects. It’s not necessarily just because their opinions differ, which might be the case, but often it may also be due to their employer’s targeted marketing campaign to grow revenues and profits.

In the past, why do you think stock analysts were paid obscene salaries of $20 million or more (which by the way was paid out of the management fees of their clients)? Was it because they were so smart? Hardly. It was because they would promote the companies with whom their firms’ investment banks had large deals. Being a good soldier at a firm had its rewards. We have said this a million times, and we’ll probably say it a million times more. Following surface level information in the investment industry will kill your ability to build wealth. Following many investment media outlets and pundits often will kill your ability to build wealth as well because they merely regurgitate surface level information that have merely compiled from various sources.

You must learn what are the important relationships to follow, how to dig out the truth underneath the surface level reports, and learn that your wallet will never be anyone’s top agenda unless you are the person that has seized responsibility for managing his or her own money. And seizing responsibility doesn’t mean relying on other people’s research. This simply won’t work. Seizing responsibility means learning how to do everything yourself, including your own research. Still want the easy way out? Good luck relying on an outsider of the investment industry, well over 99% who will never have your best interests at heart.

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