The Next Catastrophic Crunch Will Be Oil: Set to hit the USA just like In 2008
Everyone was waiting with baited breath for the news about QE-3. But perhaps the number to watch was Q-3 nominal GDP, coming soon!! The important message Ben Bernanke had in Jackson Hole was that the Federal Reserve cannot, on its own, create economic growth in America (or jobs), simply by making it more or less attractive for banks to lend; and thus for Americans and foreigners to borrow. Or by printing money to buy over-priced toxic assets so the ATMs still work, or to help the Treasury improve the structure of their debt, by buying long bonds real cheap from Bill Gross…Hey Bill, that was a patriotic thing to do!
But Mr. Helicopter wasn’t very specific about whose job that was, although one would have thought that in a free-market democracy that would be the job of either the “free-market”, or the elected representatives, or a combination of both? Either way, both of those have been conspicuously MIA (Missing-in-Action) for quite some time, like since the time Gerald Ford was in charge; Alan Greenspan correctly characterized him as the only “decent and sane” American President he had any dealings with; “the man who vetoed everything stupid that Congress put out” (I paraphrase).
Meanwhile America mutates into a quasi-fascist state where the population must serve at the pleasures of a small minority of super-rich. Who enjoy the luxuries of the protection of their wealth that is provided by the Law (particularly the one about three-strikes-and you are out), plus the huge investment in military power. Make no mistake; America spends half of what the whole world spends on defense to keep the wealth of 1% of the population “safe”, not to keep ordinary Americans, the ones who serve the rich…”safe” (guess who’s side I’m on).
Meanwhile in Belgium there was a conference to discuss whether or not the gyrations in the price of oil over the past few years were due to (a) speculation or (b) something else.
There are three schools of thought:
1: There is a (fairly recent) idea that when the amount of money the world pays for oil (in nominal dollars) gets above 3.3% of world GDP (also in nominal dollars), the extra input cost slows world GDP, but when it is less than that, it has no effect; i.e. high oil prices slow GDP growth but low prices don’t particularly speed it up. I was intrigued by the number 3.3% because that is exactly the same number that I came up with by two (other) separate approaches to try and figure out what is the fundamental price of oil, i.e. the price of “equilibrium” on the demand side of the equation. Like an Err…SNAP moment!! Although me I call that process “Parasite Economics” and the fundamental “market equilibrium” I’m interested in is just how much milk you can suck out of Daisy before she keels over with a nasty dose of mastitis.
That red line, which I call the valuation estimate of the “fundamental”, is defined by the equation which one day I suspect may eventually replace E=MC2 and the General Theory of Economics (as proposed by Keynes), and can be expressed:
FOOT = 3.3 x TOAD/OIK
Where:
FOOT = Fundamental Of the price of Oil Today
TOAD = TOtal Of All De (the) nominal GDP in the world
OIK = Total of all the OIl Konsumed.
2: Another school of thought has it that there are now constraints in production of oil, and prospects of further constraints as oil is currently getting discovered and developed, slower than the rate at which it is being used. Another way of saying that is that the replacement cost, i.e. the cost of finding new oil and bringing it to market, is what determines the correct (i.e. fundamental) price. I would like to emphasize that “replacement cost” is not the cost of pumping oil that has already been found out the ground, it is the cost of finding an equal quantity of oil that hasn’t been found yet, and pumping that to the market.
And thus the gyrations of the market reflect a flip-flop between pricing the current value of replacement cost, which is hard to know…the head of Exxon says it is $75, the BP disaster suggests it might be more; and what the buyers can afford before they start to suffer from mastitis. The essential instability to finding equilibrium there is the conflict between the luxury of governments subsidizing imports of oil, which is something that both USA and China do, and the un-sustainability, long term of financing current expenditure on the luxury of cheap gasoline, by borrowing, rather than by investing in infrastructure to lower costs in the future.
That’s a simple chart – it’s not a big secret, you can look the numbers up on Wikipedia if you don’t believe me, USA and China need over twice as much oil to generate a unit of GDP that countries that have policies to increase the return on investment on every barrel they burn. The main policy there is taxation:
Source OPEC: http://www.opec.org/opec_web/en/data_graphs/333.htm
I remember years ago asking someone how the population put up with Franco. He told me “It’s simple, cigarettes and alcohol are cheap”… in USA it’s the same deal, except over there the fascists use gasoline prices to keep the masses happy. If USA had the same tax on oil as Europe, that would generate another $500 billion a year, which is, if you think about it, enough to run a decent sized war, even these days.
3: A third school of thought has it that speculators are manipulating the market, which is what the Saudis have been saying all along (they said it was a Zionist Plot). You have to give credit to the Saudi’s role of “fairy-godmother of last resort” in this whole scenario, when there is a bubble they pump, and the reason they give is that if they don’t the world economy will stall. They could be right:
Put this one on your iPhone and weep:
So you say the financial collapse was caused by Lehman? Oh yeah…but something happened before that, nominal GDP growth in USA was half-way to the bottom before Lehman hit. The red line there by the way is a rough & ready estimate of the “fundamental” as defined by FOOT = 3.3% x TOAD/OIK, assuming that over that period the supply was pretty much constant (i.e. the line is defined by nominal GDP).
What that all says to me is that (a) on one hand as argued in my previous article the fundamental is driven by the line of nominal GDP when supply is more or less constant (b) but equally nominal GDP (or growth of that) is driven to some extent by the degree of departure of the price from the fundamental, so there is a feedback-loop working there, and as we all know from Engineering-101, when you have feedback loop you get oscillations, and sometimes those can shake your contraption to bits…like now. Oh yeah, you thought I was asleep, nope…I know about the spread between WTI and Brent, but that only started recently, and what America pays to import oil is dictated more by Brent and the OPEC basket which more or less tracks that.
How about this one:
Looks suspiciously like when USA starts to have to borrow over $125 billion a quarter from foreigners so they can pay for their “habit”; the train goes off the rails. I haven’t updated that chart, but the excess over “fundamental” paid by America in the current oil bubble, is more than they paid out (borrowed) in the last one. So how about this one:
Looks suspiciously like the departure of oil prices over the fundamental correlates pretty well with a drop in nominal GDP growth in America. Make no mistake, it’s not “real-GDP” that matters in a time of deflation, it’s nominal, how much of the nominal is inflation is something to worry about later.
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27 comments
Coming back to the core of this thesis, just came across some interesting reseach from Scotiabank. It shows that global car sales this year will be 50% higher than the average for the 1990-99 period, driven almost entirely by emerging market sales. Sales in the US are actually slightly down on the earlier period and Western Europe is only very slightly up.
That implies to me that demand ain't going away any time soon and, given that there is no sign of supplies increasing, despite already high prices, that will keep the pressure on those prices. That will be bad news for the US consumer and economy, and I don't like to think of the political consequences, when ignorance, predjudice and vengefulness may prevail...
I'm not going to enter into the debate about etymology, which I think is a distraction from the central point above.
There is NO doubt IMO that what has happened over the last 20 years is that much of the modest wealth of the many has been transferred into the hands of the few - and the many, quite correctly, won't continue to stand for it!
Whether one is looking at specific cases where the credulous masses have been misled with false promises (Equitable Life comes to mind there) or the more targeted assaults on their savings (such as Precipice bonds and other structured products)......or the deliberate volatility-generating activities of the hedgefunds who, in order to make their vast profits, must make life more difficult for everyone else and their steady savings approach.....the fact is that there has been a transfer of wealth into the hands of the rich.
Sensible governments will be looking hard for ways to tax the rich heavily to redress the balance - and that wil either require some sort of global agreement (unlikely) or perhaps some sort of serious taxation of physical property (it would have to be physical, as financial property can simply be transferred across borders).
Though I wonder how practical exchange controls might be in the modern era, if one were to consider that international business is not the be all and end all?
ee
Well said but I'm not sure how realistic it is to rely on "sensible" government.
True - but faced with really very serious alternatives and career-ending threats, even the most self-serving incompetants can make the right decisions.
Food for thought
Andrew et al,
I suggest you view "The Crash Course" @ www.chrismartenson.com.
Good insight on what's happening in the global economy with practical advice to plan your future finances/life.
Cheers
SR
Wikipedia notwithstanding, I believe that Brownshirts, Jackboots and Military parades are neither necessary nor sufficient for Fascism.
A couple of quotes:
“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.”
--- Benito Mussolini
And…
“The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.” — Franklin D. Roosevelt
This is where we are now. The controlling private power is Wall Street. The jackboots will come later when we start protesting the austerity measures in the streets. See what is happening in Greece:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=33&Itemid=74&jumival=744
If you want to be really scared, Google “FEMA Camps”. (May be B.S.)
Scubaroo: I thought that it was coincidence that I was reading this on Martenson’s website, till I discovered you posted it. Good on you.
Anybody who doesn’t know Chris should Czech him out at http://www.chrismartenson.com/taxonomy/term/633/0
THANK YOU
That's what I wanted to say, but I got a bit too emotional.
Have only just read the detail in post 7 - I'm shocked that anoyone could be so flippant about such an issue. I strongly endorse drowsy's comment above.
Not as flippant as George Bush:
International Criminal Court (ICC) Complaint Against Bush/Cheney et al
On January 20, 2010, Professor Francis Boyle and Lawyers Against the War filed a complaint against "Bush, Cheney, Rumsfeld, Tenet, Rice and Gonzales for:
Though America isn't party to the treaty, "the Accused have ordered and been responsible for the commission of ICC statutory crimes within the respective territories of many ICC member states, including several in Europe. Consequently, the ICC has jurisdiction to prosecute the Accused (under) Rome Statute article 12(2)(a) that affords the ICC jurisdiction to prosecute (these crimes) in ICC member states."
the German gas was the best - they had more practice, you don't gas six million Jews without getting a technological edge;
Absolute nonsense......totally destroys the credibility of the writer
Hi rg,
Well said !
I was working in Pakistan (for a bank that had lots of legacy business in Nigeria), when Transparency International's update came out, moving Pakistan from 'most corrupt' to 'second most corrupt' - behind Nigeria.
The 'bon mot' from one of my world-weary customers was that the Nigerians must have offered TI more, to get to first place....
"I'm too old to cry - and it hurts too much to laugh"
ATB
PS I also worked for a UK clearer that saw no problem in facilitating payments in the 80's to a certain 'rogue state' for 'spare parts LCs' or to the Argentinian atomic energy agency.....post Falklands !
Curruption takes many forms.
Andrew
going back to your opening comment
You include a chart introduced with the phrase..."Put this one on your iPhone and weep:"
That chart shows the price of crude overlaid on the variation in US GDP . The lines intersect at the crucial date where Lehman collapsed.
The clear inference is that some significant causal relationship is indicated by the convergence/intersection.
I may be being stupid here but it seems to me that the intersection is an artefact of your choice of axes/scales. There is actually no good reason at all for you to use the scales you have chosen - one in $/bbl the other in % change in GDP is zeroed in so that it co-incides with $80/bbl.
It follows that the intersection is the result of your choice of scales rather than being some fundamental mathematical truth.
If that is correct it implies that you have worked backwards from your conclsuion to determine how to best present the data to give the appearance of being supportive. Is that right? Or am I misunderstanding things here?
No the intercept was where it was and is any case a function of the different scales used and is a coincidence.
What interested me is that the peak in oil price and the start of the dramatic fall-off of nominal GDP happened before Lehman broke.
Andrew
Just one last comment on this side show then I'll move on
I think that you are doing what politicians and other slippery characters do. You threw out what I regard as a slanderous statement that the US is fascist. I challenged that. You did not respond head on but switched the focus to how great Saudi is. I challenged you on that too. You have not responded but have switched focus agan to corruption. This suggests that you do not enjoy being challenged. In which case the best thing to do is to stop making comments that invite challenge.
You claim that there is more corruption in the US than in Saudi. To support that contention you offer an anecdote about your personal experience with a corrupt architect in the US and contrast that with your experience in Saudi.
Human beings as a species suffer from many imperfections. One of them is the way that our personal experience - which is inevitably based on a small sample of the world - skews our perceptions. There is a fancy name for this - salience error? or some such. In truth a single example of personal experience is not reliable evidence for a sweeping claim such as those you are making.
Transparency International rank the US 22nd and Saudi 50th in their table of corruption perceptions - those rankings are out of 178 states. By comparison the UK ranks 20th. The table is derived from a survey with a large sample size so that indicates that most people disagree with you on the specific point you are making.
I myself have worked in around 25 countries in Europe, Africa and the Far East. I worked for a US oil major and was specifically concerned with identifying bad practice including corruption and dishonesty. In my experience there is a fundamental difference between cultures/countries. In the US and the UK there may well be corrupt individuals but corruption as it is usually conceived of is not endemic. In Africa and parts of the Far East corruption is endemic. It is so well entrenched that it is entirely unremarkable. That is simply not the case wrt the US.
I thought that Saudi was supposed to be a dry country........ ;-)
I'm afraid that I don't have the "motivation" needed for this sort of debate....
Saudi Arabia is "dry" in principal, in reality about the only thing to do as a visitor is to get drunk.
My main objection to going to Saudi is I drink too much.
As you correctly pointed out - what that's got to do with my article, is hard to figure out.
Andrew
You say that you are proud of your family members who fought and in some cases died fighting fascism. I too had family members who took up arms to oppose fascist aggression in the Spanish Civil War and again in the Second World War. Some of them died, some were terribly injured, some endured long years of captivity in conditions which make Guantanamo look like a holiday camp.
You say that you consider the US to be a fascist state. Does that mean you would join those engaged in armed struggle against the US? I'd guess not. So why not?
Frankly I regard your favourable comparison of Saudi Arabia with the US as utterly bizarre. You call the US fascist, but the US government is subject to democratic process. Presidents can be challenged and impeached. There is separation of powers. The courts are independent. The constitution is inviolate. Ordinary people have recourse to legal remedies. There is freedom of information. Each citizen is equal in the eyes of the law and the state. Of course public welfare provision is deficient by European standards but the US is a relatively young state, so it might need more time.
Contrast that with Saudi Arabia. There is no democracy. The King is neither elected nor subject to democratic control. Women are denied basic human rights. The lives of women are regulated by the State to the extent that they cannot drive, wear clothes of their own choosing, gain custody of their children, exercise rights equal to their husbands. Their rights can be compared with slaves in the US 200 years ago. Imagine your daughter wished to marry a Saudi man and go to live there. Would you be concerned? Of course you would. A member of my family had to flee from a state similar to Saudi and broke the law by smuggling out her children because she would have no rights to access following an impending divorce.
In saudi there is no freedom of conscience or of religion. The penal system is mediaeval and incorporates mutilation and torture. The right to a fair trial does not exist. A saudi prince or some other multi-millionaire is effectively above the law.
You complain that in the US wealth is concentrated into the hands of a few rich people. In Saudi wealth is concentrated into the hands of the extended royal family and a clique of wealthy people. Difference is that in Saudi the wealth of the state accrues to the benefit of the ruling oligarchy. In the US state assets are separated from privately owned wealth. And this is the system you offer as a favourable comparison to the US? I submit to you that by any normal measure Saudi is much closer to a fascist state than is the US.
Of course the US has often followed foreign policies which have been misguided and unethical. But those aberrations have been offset by great courage and generosity. Can you say the same about Saudi?
I'm afraid that I generally fail to understand the arguments advanced in your articles - they seem to incorporate too much rhetoric, numerology and anecdote for my simple brain. But I can understand your argument against the US and I find it entirely unconvincing. I think you are playing to the crowd by repeating the same old anti-American rhetoric that pervades Europe whenever we don't need the US to bail us out of trouble. I find that a complete turn off as far as the rest of your arguments go.
First of all, what my articles are about is putting numbers on what is going to happen to prove that my models work.
That's it, the rest is noise.
I said, for example:
1: The S7P 500 would bottom at6 675
2: Then it would go to 1,200
3: Then it would reverse by 15% to0 20%
4: Them it would hit 1,30o by Christmas.
5: Then it would meander
6: Then it would go down to 1,150
7: Then it would go back up.
That's numbers, you can argue philosophy all day, but numbers are numbers.
Everything else is just an explanation of how I got to where I got to. So you think America is not quasi-fascist, OK but in my opinion the absence of having the right to vote "None-of-the-above" is as undemocratic as the system that prevails in Saudi Arabia, and in practice, with legalized lobbying (kickbacks) in USA, I fail to see the difference from the way it works in Saudi.
Three years ago I hired a top-ranking US architect to design and manage the construction of a $500 million building, they were more corrupt than any architect I ever met in the Middle East they had kickbacks scams out of their ears.
You think America is less corrupt than Saudi, dream on sweetheart, I lived in America I lived in Saudi, I paid kickbacks, I know what goes on.
Philosophy apart, what I write about is what's going to happen, and why.
The reason USA is in a hole is that it is hopelessly corrupt.
Do I care?
Not one bit.
By the way, I mostly agree with what you are saying, and I acknowledge that what antagonizes you is an issue about basic humanity, which I have no contest with, I agree with your sentiments, just I like to put things into perspective.
I take exception to Mr Butter's repeated description of the US as "fascist".
The various definitions of that term which come readily to hand - Oxford Dictionary, Wikipedia - bear little or no relationship to the US. America's government, society and civil institutions are all completely at odds with those found in fascist states.
More to the point, in common parlance "Fascism" implies a system of corrupt dictatorship which oppresses/suppresses its own populace and conducts vicious aggressions against those it designates as its enemies, be they internal or external. These lead to genocide.
I would not object to the description of China, Syria or Saddam's Iraq as Fascist, to name but three. But I can't for the life of me recognise the US as anywhere remotely close. That's not to say it is a perfect liberal democracy. But its faults should not be over-stated.
To call the US fascist is to demean that term and to under-rate the suffering of people crushed by real fascist states.
I note Mr Butter's connections with Gulf States. I wonder how tolerant the Saudis would be if he called them Fascists whilst living there. In the US of course the constitution would guarantee him freedom of speech which he would be allowed to use to attack and slander the State. I think that speaks for itself.
I apologize if I caused offence – that was not my objective.
Skimming through Wikipedia, some random quotes:
“Historians, political scientists and other scholars have long debated the exact nature of fascism. Each form of fascism is distinct, leaving many definitions too wide or narrow”.
“George Orwell wrote in 1944 that "the word 'Fascism' is almost entirely meaningless ... almost any English person would accept 'bully' as a synonym for 'Fascist'". Richard Griffiths argued in 2005 that "fascism" is the "most misused, and over-used word, of our times".
The part that best reflects my use of the word was:
“Fascists believe that a nation requires strong leadership, singular collective identity, and the will and ability to commit violence and wage war in order to keep the nation strong”.
So perhaps what the word means to you is not the same as what the word means to me, genocide is a common result of fascism, but that's not obligatory and plenty of other political persuasions practice genocide.
With regard to your view that I am somehow "demean" the great liberal tradition of America by using the word fascist, and that somehow I do not acknowledge the atrocities of fascist governments, that is not correct. My father, his brother and my cousins fought fascist Germany one was killed, one got a Military Cross, I am proud of that.
But perhaps you forget that America has not signed up to either Protocol One of the 1977 Geneva Convention (that’s the one about protecting civilian populations in times of war), or to the International Criminal Court which is supposed to prosecute alleged war criminals. Living in the Middle East as you have noticed I do, and hearing first hand accounts of the conduct of the US Military, I regret that I disagree with your romantic ideas on the essential “goodness” of American Military power.
With regard to what I might say about the country I live, well actually I do say and write a lot, although you are correct, I am careful not to cause offence. But actually, I find it easier to say hard things here, than it is to say hard things about America in American media, freedom of speech requires freedom of the press, and if you think the US press is free, you are naive.
More to the point I happen to believe that the particular place I live, the UAE is a very well governed and tolerant country which takes it’s obligations to the world community very seriously. Also, incidentally, it hands out more money in aid to poor countries, per unit of GDP, than any other country in the world. My main beef about the UAE is that they waste money.
With regard to Saudi Arabia, in my view Saudi is also well run, in the circumstances (which include having to contend with a part of the population that has very strong religious views), and that the efforts that the Saudi Government has made to mitigate against oil bubbles which are, as I have argued, very damaging to the world as a whole, should be commended.
I’ll go one further, in my opinion Saudi Arabia should be invited to have a permanent seat on the U.N. Security Council after all, it represents more than any country in the world the Muslim religion, which is not represented at all on that council, and the track record of the government as a pragmatic facilitator of peace, is good, you forget perhaps that the Saudi's were close to finalizing a deal to get the Taliban to hand over Bin Laden, when 9/11 put an end to negotiations.
I have lived in USA, and in Saudi, in my opinion ordinary people in Saudi Arabia are better treated and cared for by their government than ordinary people in America, and the "guest workers" who reside there temporarily, are infinitely better treated in Saudi than the "wet-backs" get treated in USA.
Some interesting thoughts in there. I suspect that this is the key one re oil:
I suspect that true replacement costs are very much higher than the number you quote from Exxon. $75 might be Exxon's number - but it won't be the number for the world as a whole. One important aspect is the cost of developing new technologies - and that seems to be ever-rising.
There are three other factors that I think are important:
a) the breakeven oilprice that is subsumed into the Saudi Government's budget......I've seen reports that this is as high as $100 for 2015. The cost of keeping the peace in the middle East is rising - mainly because the cost of buying-off the local populations is rising!
b) I strongly suspect that without the ever-growing government borrowing in the western world over the last 30 years, growth rates would have been considerably lower (I'll leave it to economists to try to put numbers on it). We are now seeing that multi-decade pattern of pump-priming being forced into the buffers - and that in itself will have a material impact on growth (and indeed may force new aims on government policy which are not as growth-oriented). I can't quite understand why economic growth per se is considered a good policy objective.
c) The elephant in the room is the ability of Saudi Arabia to continue to fill supply shortfalls. Whether they will struggle to maintain political control or whether it will simply be that Ghawar eventually comes off plateau (as forecast by Simmons in 2004), I really don't know. But the Saudi's present "swing producer" status simply won't be sustainable indefinitely.
ee
a): I agree the replacement cost is likely much more than $75, that was put out as a low number, the high number is what it costs to reliably drill for oil in middle of the Atlantic, that's pretty much anyone's guess and fairly academic whilst some countries just pump as much as they can, often so that the people in power can take the money and run.
The cost of keeping the "peace" in the Middle East has nothing to do with oil, it's the cost of protecting Israel maintaining their luxury of intransigence.
b): It wasn't government borrowing in USA that created the illusion of wealth (and sustainable GDP), it was, certainly over the past ten years, the machine of securitization.
c): You are correct that Saudi cannot be the "swing" producer for long, also their oil is high in sulphur and the market is splitting; don't "worry" about political control.
Really?
Whilst Israel is its own enemy, the repressive regimes (and some of the less repressive ones) across the MENA area have taken a look at what happened with the revolutions and decided that its in their own best interests to throw some "crumbs" to the masses to keep the ruling elite in control.
Looking at the demographics of many of the ME countries (huge very young populations and mass unemployment) you can see the scope for further unrest. Unfortunately, the only way to do that is to maintain high oil revenues to pay the "bribes". Add to that the massive rise in consumption in Saudi and its reduced scope for export supply and oil prices are going to remain high for quite some time.
Ideally a fall back to a more "acceptable" $80 say, would benefit global GDP but hurt those much needed ME revnues and what happens if/when the Saudi "masses" rise up and overthrow? Look at previous examples of revolutions in oil producing countries to see how long (if ever) it took to get production back to pre revolution levels.....
I'm afraid I completely disagree with that and completely agree with djpreston's response to you. Israel is a big factor regionally - but the major pressures facing their neighbours now are internal, now that the so-called "Arab Spring" genie is out of the bottle. It is ridiculous to say that the vast increase in Saudi Government spending that this has prompted has no implications for the oil price!
Certainly securitisation ramped up the illusion of wealth to a whole new level, but the cultural change that preceded that period (and which created the conditions for the vast mushrooming of personal, corporate and government debt) was that governments no longer worried too much about debt levels - and that fed through into encouraging individuals not to worry much about it either. It was a "madness of crowds".
One of the interesting things is the calls in the West from many of the rich themselves for taxes to be raised on the rich. They didn't get where they are today by being stupid....and they can see which way the wind is blowing. Not only is is morally right for the rich (and ruling elites!) to pay their fair share - but it is very important for them to be seen to be doing so.....because if they aren't then they risk losing it all through uprisings!
ee
I disagree - but I'm pleased to have the opportunity to debate.
You need to differentiate between how much America spends to defend her oil supplies AND keep Israel safe, regardless of what they do (and they didn't sign Protocol One or sign up to the ICC either), and what the Saudis spend, mainly to protect their own situation.
Keeping Israel "safe" must also be differentiated from the cost of keeping the oil flowing (as if anyone wants to stop it flowing). For example from the threat of WMD in Iraq which if they existed, threatened Israel not oil supplies and the "threat" of Iran, ditto.
The "neutralization" of the WMD threat was a trillion dollar or more "aid-package" to Israel, the idea that the WMD program, if ever it existed (so far no proof has been found that it did), threatened America or UK is laughable.
Imagine if that money had been spent in USA building bridges, or whatever?
Don't forget the one condition Tariq Azziz had when he was negotiating the withdrawal of troops from Kuwait, was that sensible balanced negotiations be put in place to resolve the Israeli/Palestine issue - that was non-negotiable by USA, and that was the reason George Bush #1 pressed the button.
Saudi Arabia spends a huge amount of money on defense, that;'s good for America because that's where she buys most of her equipment, so the more insecure the Saudis feel, the better that is for America.
That expenditure these days is mainly against the supposed threat of Iran, which is not a threat, Iran is absolutely uninterested in Saudi Arabia. And sure, the Shia living in the Eastern Province where all the oil is, would in a democracy, have more rights. But Iran is not interested in that either.
I'm sure, as an ardent student of the Middle East, you will remember that the reason Iran refused to stop the Iran/Iraq war, once they were winning, in spite of the gas supplied from Germany and Portugal - all of course supplied in line with the Geneva Convention, particularly the stuff used on civilians...helps if you have an inside track into the ICC.
The reason they refused the initiatives by the USA and the Saudis was they wanted TWO things:
1: Saddam Hussein had to go.
2: Democratic elections (which the Shia would win).
The response of USA to that idea then was to shoot down an Iranian passenger plane (with one of my friends in it), when it was flying in Iranian airspace - so the Iranians sensibly decided to climb down. No one can fight America head on.
But now, one or two trillion dollars of American taxpayer money later:
1: Saddam Hussein is gone
2: They had democratic elections (which the Shia won).
I'm surprised the Iranians didn't send America, and her taxpayers, a thank-you-note.
As far as the Saudi promises to spend more - well OK - I'll believe that when I see it.
Regarding your second point - the reason anyone could make all those stupid loans which drove up house proces, was that via securitization you could get some moron to buy the mortgages.
Re the Rich asking for more taxes - sure - they realize the value of having their wealth protected, I have (elsewhere) suggested a 3% a year wealth tax on anyone with a net-worth of more than $5 million, in USA and Europe.
And anyone who doesn't want to pay, can piss off and go and live in Mogadishu, or Dubai which is the most boring place in the world unless you like $1,000 hookers (I said it was well governed, boring is something else).