Gasoline Cars vs Hybrid Cars - Which is Cheaper?

Today people are queuing up for hybrids for a host of reasons. More mileage, cleaner emissions, less dependence on imported oil and the likes.

So how do conventional cars really match up to hybrids. Well here's a look.

As far as fuel efficiency goes the odds are clearly in favor of hybrids. You could get savings of 20%-25% on your gasoline bills if you are driving a hybrid. But before you get rid of your gas guzzler and rush off to the nearest Toyota/Honda dealer there are some things you must consider.

There is a lot of hype about the fuel efficiency of a hybrid. In fact the mileage that you actually get may be lower than what is advertised. This is because driving conditions in which the battery of a hybrid gets recharged fastest is by deceleration and regenerative braking. This simply may not always happen, resulting in a noticeable difference between the advertised and the actual mileage.

Then there is the premium that you pay for a hybrid: It shouldn't be anything less than $2,000 . If you consider the fuel that you save then at the current gas prices you will need to drive about 150,000 miles before you recover the initial difference in cost. If you don't drive too much it could be at least a ten year wait. What's more hybrid's store energy in large battery packs. These are costly to replace, more than $2,500. Although they last a long time, the cost of replacement is certain to drive down the resale value of used vehicles.

Again mixing of electric power and traditional internal combustion engines requires a lot of fine tuning. Then there are risks associated with handling powerful batteries. Small hiccups may mean a trip to sophisticated garages rather than the mechanic round the corner. The result, more money spent on maintenance.

However inspite of these apparent drawbacks it seems hybrids will win in the long run. As their production increases, prices are bound to come down because of economies of scale. Then the federal government offers a tax credit for buying a hybrid, which is about $2,000 for a 2007 Honda Civic. Additionally some companies also offer cash incentives to employees buying hybrids.

All in all, no matter what your calculator tells you now , hybrids are the cars of the future. Even today the extra dollars spent on one are a small price to pay for preserving the environment.

Japanese vs.US Hybrid Cars-Why the Difference?

Hybrids are the fastest growing segment of the American car market.In 2006 the sales of hybrids rose to 1% of total car sales ,an increase of 22%over the previous year.This high rate of growth looks set to continue with the public growing increasingly concerned about depleting world oil resources and the environmental impact of fossil fuels.

The figures speak for themselves.Hybrids can cut fuel consumption by up to as much as 40%.As far as cleaner environment goes the new Ford Escape Hybrid produces less than one pound of smog producing pollutants in a 15,000 mile drive.Its significance can be understood only when you consider that for non hybrid passenger vehicles the corresponding figure is 67 pounds!

It was Toyota which first demonstrated the hybrid-electric concept at the Tokyo Auto Show in 1995.At that time Toyota set an aggressive development schedule to bring the Prius to the Japanese market in two years time in an effort to be the first car company in the world to offer a production hybrid-electric car for sale.And succeed they did.The Prius was offered to the Japanese public in 1997 before the signing of the Kyoto Protocol.

The Prius went on sale in the US in 2000 and was an instant success.The first hybrid electric model in the US market,however, was the Honda Insight in 1999.The Honda Civic hybrid went on sale in 2002.

The year 2004 will be remembered for the launch of the second generation Prius.In addition the first full size pickup hybrids the Dodge Ram and the Chevy Silverado as well as the first SUV hybrid the Ford Escape hit the streets this year.

The success of the 2004 Prius led some experts to call it the most successful car model of all times.At one time it sold at a premium of $2000 over its sticker price!Even today the Prius sells more than all the other models combined.

So what did Toyota and the other Japanese automakers get right which the US automakers got wrong?Nothing really because it was just a question of focusing on a particular area.US automakers concentrated all along on pure electric cars and hydrogen fuel cars.While electric cars were introduced in the market they did not become popular because of limitations of size,speed and range.The hydrogen fuel car is still under development although GM hopes to introduce it in the market by 2010.

Of late the US manufacturers have sought to duplicate the success of the Prius.Encouraged by the success of the Ford Escape they have directed their energies into developing an American hybrid.But unlike the Ford escape which has been built under a licensing agreement with Toyota,GM's forthcoming Chevy Tahoe hybrid is st to be a very important event for the American auto industry.

Why so?The Prius recharges its battery pack through deceleration and regenerative braking.Thus while it improves fuel economy significantly in the city its results are not so spectacular on the highways.The USA is a huge country with a vast highway network.The Tahoe hybrid and all GM dual mode hybrids offer some additional tricks on the highway, which is very important in the US.

The year 2008 therefore promises to be an interesting one for the US hybrid industry.While none of the models are going to match the efficiency of Toyota,US automakers are clearly back in the reckoning.

Is The U.S. Justice System Flawed?

A report released recently informs us that almost 2.2 million people are in US jails. This marks an eight fold rise in the number of Americans in prison since 1970.It costs the taxpayer about $65 billion annually. The report has been produced by the JFA Institute a Washington criminal justice research group.

The impact of such a large number of people in prison is awesome.Once you include the families the prisoners leave behind,the prison guards and the prison administration, the lawyers and the justice system, it would seem that the system affects almost everybody.

The benefits of the present system are clearly visible. The streets are definitely safer.The homicide rate in the 1990's fell by 43% and continues to decline. The value of a safe neighborhood certainly outweighs the costs of imprisonment.

On the flip side, the prison population is set to increase by almost 200,000 over the next five years and it will cost another $27.5 billion to build and run the additional prisons that will be needed.Such a judicial system also serves to deepen the divide between the privileged and the disadvantaged.This is because the disadvantaged, the less skilled and the less educated are more likely to end up in jail.Spending their productive years in jail not only reduces their lifetime earnings but also adversely affects the prospects of re-employment upon their release.It also certainly affects the financial prospects of the families they leave behind.Critics also argue that in spite of such a harsh system the crime rate is where it was in 1973.

So what needs to be done about it. Before attempting an answer it is necessary to understand the reasons that lie behind this prison boom.It happened because crime increased and there seemed to be no way to control it except by imposing tougher penalties.This resulted in longer jail sentences being handed out with fewer chances of an early release.The war on drugs led to the arrest of a large number of small time users and drug dealers.Presently almost 60% of prison inmates are in for drug offenses.Supreme Court Justice Anthony M. Kennedy remarked:'Our resources are misspent, our punishments too severe, our sentences too long.'

Maybe it's time to give the entire system a re look.To start with, prison sentences for petty crimes could be shortened and prisoners could be made eligible for early release in deserving cases.Alternate forms of punishment also need to be considered.There is also a case for being a bit lenient on 'soft drugs.'Debates on legalizing marijuana for medical use seem to indicate that this option is being seriously considered.

An editorial in The Washington Times said that prisoners deserve punishment.'But we shouldn't forget that a vast majority will also be returned to society, which has as much at stake in their rehabilitation as they do.'

Move Over G.M.-The Honda FCX Clarity Is Here!

Honda may have found the answer to $4 plus gas.It has started production of the FCX Clarity fuel cell car that goes on lease in California this year. It is the first regular production fuel cell car aimed at individuals. The others have been aimed at fleet operators. The response has been overwhelming. People have been literally falling over themselves to get a chance to drive the sleek four door car, and Honda has drawn a lottery to decide who will be among the around 100 lucky ones who get to drive it.Mind you, this is when leasers will have to pay $600 a month as lease charges plus extra for fuel. The $600 a month however includes both collision insurance and maintenance.Even then it is a bargain as each car is estimated to cost more than $300,000 to build.A gallon of hydrogen fuel costs about the same as as a gallon of gasoline, but you get two to three times the mileage with hydrogen. Although GM has about a six month start with its Chevy Equinox fuel cell vehicle, Honda has come up with a much more attractive car.

The car's V-flow fuel cell has been developed in-house by Honda. It uses hydrogen to generate electricity, which powers the 134hp electric motor. The car is a front wheel drive, and travels 270 miles on a full tank of hydrogen. It has a top speed of 100mph, and goes from 0-60mph in 10 seconds. Honda intends to develop up to 300 FCX Clarity models over the next three years.

But presently there is a big negative to using hydrogen as a fuel. Making hydrogen takes more energy than hydrogen produces. It is proposed to produce hydrogen from natural gas and the world's reserves of natural gas are limited. Till such time that hydrogen can be produced from sea water, the days of really cheap fuel are still far away.

Hedge Fund Owner Cheats Investors Of $450 Mill,, Vanishes

Samuel Israel, founder of the Bayou hedge fund group has disappeared the day he was to begin a 20 year prison term for defrauding investors of $450 million. Police have put out 'Wanted' posters, and describe him as 'armed and dangerous.'

Founded in 1996, the fund raised about $300 million from investors, promising them that the fund would grow to $7.1 billion in ten years. The fund however never seems to have made any money and got along by overstating gains, or reporting gains where there were losses. In 1998, about three years after the fund was launched, international financial markets were in turmoil following the Asian crisis, and in America things were made worse by the threatened collapse of Long Term Capital Management. The fund made huge losses. In order to cover their losses the group approached investors for fresh money. In order to attract investors , Israel allowed them to join by bringing in a minimum of only $250,000, which is much smaller than the amounts typically demanded by hedge funds. He also waived his management fees and charged only 20% of the fund's profits as his remuneration. Simultaneously he hired a fresh firm of auditors who were willing to fake accounts to hide the mountain of losses the firm was saddled with.

But it was these very practices that started making people suspicious. As news got around about the true state of affairs, investigations were started, and in September 2005 the Commodity Futures Trading Commission filed a complaint in court alleging misappropriation and fraud.

In April of this year, Israel was sentenced to 20 years in prison and ordered to pay a fine of $300 million after pleading guilty to defrauding investors. On the 10th of June he vanished just hours before he was to begin serving his sentence. It could be suicide, but people suspect that he has faked his death and is on the run.

U.S. Economic Slowdown Threatens Deflationary Spiral.

When the subprime crisis first broke in August of last year, few anticipated the extent and depth of the crisis. At that time it was estimated that subprime related losses would be about $140 billion. The situation was bad but not impossible and Bernanke rightly assumed that simple adjustments to interest rates would take care of the situation. But the banks and financial institutions had hidden their risky investments too well in off balance sheet entities, to avoid regulatory supervision, as a result of which losses were grossly underestimated. As the magnitude of the crisis unfolded, there was panic all round and the Fed's primary task became one of saving the financial system, never mind inflation or the value of the dollar.

In order to prop up the financial system an unprecedented amount of money has been pumped into the market. It is this growth in money supply which lies at the root of inflation, although it has become fashionable to blame emerging market growth and commodity prices for it. Inflationary pressures coupled with falling home prices, have finally taken their toll on consumer sentiment. A near stagnant economy, together with falling asset prices and the devaluation of the dollar has impoverished the American people.

The economic numbers released lately paint a picture of the economy which is not as grim as expected, which has prompted many experts to stick their necks out and predict that the worst is over. But this may not be the case, and in fact the worst may just be about to begin. This is because in order to fight inflation the Fed will have to increase interest rates sharply, although it may choose to wait till after the November elections to do so. Central banks all over the world are expected to follow the Fed in raising interest rates to tame runaway prices. The impact of rising interest rates on an economy already teetering on the brink of recession is almost a foregone conclusion. Economic activity in the US is expected to decline further. These recessionary conditions will put further pressure on asset prices and they are expected to fall across the board. Bond prices will fall as interest rates rise, as will stocks, as higher interest rates eat into corporate profitability and falling demand reduces their ability to raise prices. Home prices are already projected to continue falling till the end of the year at the very least.

Banks and other financial institutions have already written down the value of their assets by about $389 billion, which has impacted their share prices. Reduced economic activity will impact future revenues and reduce earnings as well as valuations. The only chance of avoiding this scenario would be if by some miracle oil and commodity prices were to come down sharply. If this happens without having to raise interest rates too far, a deflationary spiral may perhaps be avoided.

High Oil Prices May Cause De-Globalization!

The global economy today is more integrated than ever before. Globalization has on the whole, brought tremendous benefits to the participating nations.Among other reasons, the unprecedented worldwide economic boom witnessed in the last few years was due to manageable oil prices. I say manageable because, while oil prices which were around $30 a barrel before the start of the US led invasion of Iraq, rose to about $60 a barrel by the end of 2006, they were still well below earlier peaks after adjusting for inflation. Trade between nations has grown exponentially, particularly between the US and other Asian countries, which have been able to successfully leverage their low wage structure. In the process these Asian countries, notably China, came to enjoy sustained double digit rates of growth, which lifted a large proportion of its huge population out of poverty. The cheap goods which they exported to the US, helped in keeping inflation there in check and prevented any major increases in wages. This led to a tremendous improvement in US corporate productivity and profitability.

Now the dream is coming to an end.The cost of transporting both goods and people is rising at such a fast pace that it threatens to derail global trade. Shipping costs to the US from Asia have already tripled since 2000, and are set to rise further as oil prices show no signs of coming down.Not only is the cost of shipping goods to the US from China increasing, China finds that the cost of importing raw materials is increasing as well, which will undoubtedly impact its profitability. The rising cost of imports will further increase inflationary pressures within the US economy and will make the Fed's job of restraining inflationary pressures more difficult. The Fed is well aware of the problem that it faces, and in recent comments Bernanke has focused more on the dangers of inflation with the housing crisis taking a back seat. It has to perform a tough balancing act in the days to come. Faced with expensive imports, consumers are likely to switch their demand to locally manufactured goods, which though being good for local industry as it gives them pricing power, will certainly impact global trade. The process of de-globalization seems to have begun.

China Buys Its Way Into Wall Street

After Abu Dhabi Investment Authority, which made news last year for picking up a 4.9% stake in Citigroup for $7.5 billion, it is now the turn of the Chinese government owned Chinese Investment Corporation to get into the act.

Eager to cash in on the opportunity thrown up by the debt crisis the Chinese Investment Corporation has ploughed billions of dollars into the best known names on Wall Street. In control of almost $100 billion of China's huge forex reserves it has pumped in close to $5 billion into Morgan Stanley in a deal announced at the end of 2007. This means that China has ended up with almost as much as 9.9% of one of Wall Street's most powerful banks. This is the latest in a string of high profile investments made by the Chinese. The CIC already has a stake in the US private equity firm Blackstone and the Chinese Development Bank owns 3% of Barclays.

The deal only serves to highlight how things have changed over the last few moths, all due to the credit crunch. Two years ago a Chinese oil company wanted to buy the small US oil group Unocal. US politicians cutting across party lines asked that the plan be dropped and demanded that China open up its economy and protect intellectual property rights. Likewise when Dubai Ports World took over strategically important US ports last year, it kicked up a political storm which ended only when the bidder agreed to sell off the US ports.

Till now it was the US banks which were keen to acquire stakes in Chinese banks in a bid to gain a foothold in China to tap into the growing wealth of its population. Now it seems to be the other way round. China not only holds a stake in Barclays but also has a director on its board. Morgan Stanley for its part has made it clear that CIC will not have a representative on its board. This may well have been a condition imposed by the White House, one readily accepted by China after its Unocal experience.

Such investments by China in the capitalist world would have been unthinkable a few years back. Indeed there are many who view them with suspicion, as having been prompted by other than purely business considerations. The Chinese had clearly anticipated this problem and have constituted CIC as an independent company with its separate board of directors. They are at pains to point out that it is free from any state control whatsoever and argue that it is necessary to develop institutions to manage the $1.3 trillion worth of forex reserves they presently hold.

With its economy unaffected by the current financial crisis, the Chinese look set to follow the oil rich nations of the Middle East as big investors in the US economy. In a way it may be good for the global economy. Once the largest economies of the world are more closely interconnected and interdependent it would be less likely that any one of them would want to spoil the party.

Credit Card Use Increasing Despite Economic Slowdown.

America's love for plastic money has grown over the years. Total consumer debt in the US stands at more than $2.4 trillion.Total US consumer revolving debt is over $900 billion. Fifty-one percent of the US population has at least two credit cards, with one in ten consumers carrying more than ten credit cards in their wallets. There has been a tremendous increase in the number of credit card holders in the recent past. This is because many cards now offer points which can be accumulated and used to pay for merchandise or airline tickets.

The current economic slowdown does not seem to have had any significant adverse impact on the credit card industry. MasterCard forecast Thursday, that its revenue growth in 2008 will be in double digits. It also raised its long term profit outlook significantly. It now expects average annual net income growth of 20% to 30% through 2011, compared with earlier estimates of 15% to 20%.

Credit cards were first issued in the US in the 1920's, when individual firms, such as hotel chains and oil companies began issuing them to customers. The inventor of the first bank issued credit card was John Biggins of the Flatbush National Bank of Brooklyn in New York. In 1950 the Diners Club issued their credit card in the US which was intended to pay restaurant bills. American Express and Bank of America issued their credit cards in 1958.

These cards were an overnight success. Initially credit cards were targeted at traveling salesmen for use on the road.Over the years credit cards have evolved into a form of credit from a device of convenience. One in six families with credit cards pays only the minimum due every month, and almost 37% users carry more than $10,000 of debt. Deregulation of interest rates has allowed very high rates of interest to be charged. Courts also lifted restrictions on the amount of late fees a credit card company could charge. Interestingly, both Visa and MasterCard were started as non-profit organizations.

Credit Card Use

Barbie versus Bratz slugfest lands up in court.

Sales of Barbie dolls, Mattel's flagship brand have been declining within the US for sometime now. Most of the decline is due to the growing popularity of the Bratz range of fashion dolls. These dolls were launched by MGA Entertainment in June 2001, and quickly emerged as a serious competitor to Barbie.

Bratz was created by Carter Bryant an ex-employee of Mattel. Bryant presented his drawings to Isaac Larian the CEO of MGA Entertainment. Larian's eleven year old daughter Jasmin, who was visiting his office at that time was fascinated by the sketches, and Bratz was born.

Sales of Bratz have grown rapidly and currently stand at more than $3.5 billion annually. Most of this has undoubtedly come at the expense of Barbie. Mattel finally decided that enough was enough and have launched legal action accusing MGA and Bryant of copyright infringement. They are seeking millions of dollars in compensation.

Mattel claims that Bryant worked on designing Bratz while he was their employee.'He concealed his Bratz work from Mattel and wrongfully sold Bratz to MGA while he was a Mattel employee,' they say.

MGA says that Bryant first got the idea in 1998 while he was not working for Mattel, and that the dolls were develped by its own engineers in late 2000 and 2001. MGA claims that it is only after sales of Bratz started hurting profits of Barbie that Mattel has initiated legal proceedings. It says Mattel's claims are baseless , and plans to counter-sue for a billion dollars in damages once the current court case is over.

Landowners Being 'Conned' By Gas Companies.

Landowners in many parts of the US are sitting on top of a fortune without knowing it. There are large deposits of natural gas stretching from the suburbs of New York to West Virginia and in parts of Indiana and Texas. Rising prices have made these deposits valuable, and improved technology has made it possible to tap them.

'Landmen,' persons who obtain mineral rights for companies are on the prowl getting unsuspecting people to sign over their rights for as low a price as possible. Many landowners have been conned into signing over the rights for as low as $5 an acre and 12.5% royalties. Others who held out or formed bargaining groups have ended up getting up to as much as $2,400 an acre and 15% royalties.

Some lawyers have started campaigns to educate landowners about mineral leasing. They are advising landowners not to be rushed into signing documents and also about the kind of leases they should enter into.

Soldiers Hit Hardest By Foreclosure Crisis.

The foreclosure crisis is deepening as home prices continue their journey southwards. They have fallen by a huge 14.1% in the first quarter of this year, according to data released Tuesday. Although precise data is not available, it is feared that the group hit hardest by the current crisis is the US serviceman.Foreclosures in towns where US soldiers live are increasing at a pace almost four times the national average. The biggest increase is reported from Columbia, South Carolina, where the army trains recruits for duty in Afghanistan and Iraq at its Fort Jackson facility.

The main reason for this is low salaries, which for recruits with about four years experience, even after adding allowances, falls well short of the median household income of $59,224 in 2007. Unfortunately it was this group which was targeted aggressively by lenders during the housing boom with Adjustable Rat Mortgages, offering attractive initial rates of interest. Now as rates reset at much higher levels, these soldiers are unable to pay, and thanks to the slide in home prices,they are also unable to sell it at a price which covers their outstanding loans. Although the law protects members of the armed forces from foreclosure while on active duty, the protection is available only for 90 days after they return home. Often when a soldier returns after being discharged due to stress or injury his chances of finding new employment may be compromised. The current economic downturn has only made matters worse.

New legislation is proposed to raise the refinancing limit for a VA guaranteed home loan, and also to prohibit lenders from foreclosing on servicemen for a year after their return from active duty.

Says a veteran,' It's heartbreaking to see people struggling with a foreclosure while they or someone they love is in a war zone, or when they're trying to adjust after coming back from one.'

Hottest Car Accessory Is A Free Handgun!

Salesmen at one Missouri auto dealership aren't offering a free CD player or an air conditioner to boost sales. They are offering free handguns instead. Mark Muller, owner of Max Motors hit upon a novel idea to promote auto sales. He has a dealership in Missouri that sells both used and new vehicles including General motors and Ford products. He started offering buyers a choice between a $250 gas card or a $250 credit at a gun shop. Sales have quadrupled since the start of the offer. All but two of the buyers have opted for the gun rather than the gas card. 'Except one guy from Canada and one old guy,' every buyer has chosen the gun, said Muller. One of these two exceptions said she had plenty of guns at home.

Buyers are given a certificate for a free handgun of their choice, but Muller recommends his customers select a Kel-Tec .380 pistol, which he describes as 'a nice little handgun that fits into your pocket.'

His advertisement is available online. The offer continues till the end of the month. An approved background check on gun ownership is however required.

Australian Man Pardoned 87 Years After Hanging!

Colin Campbell Ross was hanged for allegedly raping and strangling 12 year old Alma Tritschke almost 87 years ago. Ross, who ran a wine saloon was alleged by the Crown to have given alcohol to the little girl before comitting the crime on New Year's Eve 1921. He was sent to the gallows the following year, although witnesses had placed him elsewhere at the time of the murder.

Ross always maintained his innocence, and a review of the case has found that hairs found on a blanket at his home and used as evidence against him did not belong to the victim.

'This is a tragic case where a miscarriage of justice resulted in a man being hanged,' Victoria Attorney-General Rob Hills told The Age newspaper.'It also sends a salutary warning to those who still believe that the death penalty still has an appropriate place in our legal system,' he added.

The case was reopened because of a campaign by the families of both Tritschke and Ross. A forensic examination of the hair revealed it was not Tritschke's.

'It's a tragedy for everybody that the actual perpetrator was not caught and an innocent man lost his life,' a spokeswoman for the dead girl's family said.

Betty Everett, the hanged man's niece said,' I have lived with this fear and doubt for most of my life, the more as I began to have children, that perhaps I carried the genes of a murderer. That shadow has gone.'

Premier John Brumby said that the request for pardon had been a joint request by both Ross' and the victim's families.

23% Americans Shorten Memorial Day Travel Due To High Gas.

Gas at almost $4 a gallon has really hit travelers hard.An estimated 23% Americans shortened or abandoned their weekend travel plans because of the record gasoline prices, according to a survey by consulting firm Deloitte and Touche. Among families with younger children, under 13, 35% changed their plans.

About 37.9 million people traveled at least fifty miles during the holiday weekend, which started May 23rd and ends tomorrow, according to AAA, the largest US motorist group. It is one percent lower than last year and the first fall since 2002.

Many travelers who usually drive have already switched to mass transits to reach their destination. The number of passengers using Amtrak has increased by eleven percent over last year, according to figures released by the company. The company is due to release figures for the Memorial Day weekend next week.

Hotel chains with economy and mid size rooms are seeing brisk business as travelers seek value and economize. People are shopping around for deals and packages and hotel chains offering such bargains expect to be fully booked for the entire summer.

23% Americans Shorten Memorial Day Trvel Because Of High Gas Prices.

Gas at almost $4 a gallon has really hit travelers hard.An estimated 23% Americans shortened or abandoned their weekend travel plans because of the record gasoline prices, according to a survey by consulting firm Deloitte and Touche. Among families with younger children, under 13, 35% changed their plans.

About 37.9 million people traveled at least fifty miles during the holiday weekend, which started May 23rd and ends tomorrow, according to AAA, the largest US motorist group. It is one percent lower than last year and the first fall since 2002.

Many travelers who usually drive have already switched to mass transits to reach their destination. The number of passengers using Amtrak has increased by eleven percent over last year, according to figures released by the company. The company is due to release figures for the Memorial Day weekend next week.

Hotel chains with economy and mid size rooms are seeing brisk business as travelers seek value and economize. People are shopping around for deals and packages and hotel chains offering such bargains expect to be fully booked for the entire summer.

Charity Means Giving Away For Free,Says Supreme Court.

Non-profit organizations are concerned a recent Minnesota Supreme Court decision could strip them of their non-profit status.

A tax assessor of Mille Lacs county had ruled that a juvenile center was liable to pay property taxes as it was not doing any charity. The day care center appealed.The Minnesota Supreme Court ruled in December 2007 that the center was not eligible for a property tax exemption, mainly because it did not provide services for free or at a discounted rate.

The judgement gives a boost not only to other local authorities across the country, seeking to tax such institutions, but also to members of Congress who feel that the tax exempt status of many so called non- profit institutions is not justified. They may well have a point there, as the activities of many such institutions are in no way different from the activities of other similar institutions which do not enjoy tax exemption. The rationale behind granting tax exemption to charitable institutions is that they perform a social function which the government would otherwise have to do, only they do it more efficiently. But the justification for tax exemption disappears if the non-profits are organized on business lines, and charge the same price for their services as the non exempt institutions. Members of Congress complain that rich universities and hospitals are neither subsidizing needy students nor treating patients for free.

'The extent to which the recipients of the charity are required to pay for the assistance received tests for a value that is fundamental to the concept of charity-that is, whether the organization gives away anything,' Chief Justice Russell A. Anderson wrote in the decision.

Buffett Finally Strikes Note Of Optimism.

The world's richest man told newspaper El Pais in an interview Sunday, that banks were to blame for the mortgage crisis who took too many risks in mortgage lending. He also said he believed the situation in financial markets would not deteriorate further.'I don't think the situation will get worse in financial markets. General conditions in the business world will get worse but it will only last a while,' he said, adding he had no idea when an upturn will come.

Just a day earlier in an interview published in a German magazine Der Spiegel he had predicted that the US recession will be deeper and last longer than many people think.

Now it appears as if he is saying that the economy will muddle along as it is doing presently. Buffett was also critical of derivatives trading, which is speculation. He blamed speculation for destroying the financial superstructure built around different sectors of the economy, while those sectors themselves continue to be healthy.

Interestingly he is beginning to sound like several high profile leaders before him who blamed speculators for economic upheavals in the past. Malaysian Prime Minister Mahathir Mohammad, at the height of the Asian financial crisis in the late 1990's had called currency speculation immoral and had responded aggressively by tightening state control. Hong Kong chief executive Tung Che Hwa had also vowed to defend the island's currency, and had done so successfully by using Hong Kong's large foreign currency reserves, a move which ultimately netted Hong Kong a tidy profit as well. Now is Buffett trying to say something?

First Speculative Bubble Was Not In Oil But In Tulips.

Financial markets are not always rational or efficient.Often people go on a speculative binge ignoring reality. Speculators will buy anything, not because of its intrinsic value, but because they are confident of selling it some time later for a profit. This is the 'greater fool' theory, that is although one may be a fool for buying something, it is OK as long as somebody else is willing to buy it at a higher price.

One of the earliest and most famous bubbles was the Dutch tulip market of the 1630's. The tulip was introduced into Holland in the middle of the 16th century from Constantinople. It quickly became a status symbol. Until the year 1634 the tulip constantly increased in reputation, until it was deemed a proof of bad taste in any man of fortune to be without a collection of them.

After 1630 people started speculating in tulips. Prices took off and the market developed a life of its own. people bought tulips at absurd prices only because there were others who were willing to pay those prices. For instance, a single bulb was exchanged for twelve acres of land. Another was sold for a carriage, two horses plus some cash.

This tulipmania continued till 1636 when enough Dutchmen started wondering if the tulip bulb was worth it after all, and people decided to get out. As this sentiment spread prices started falling and they fell till prices reached a realistic value for what was after all, just a flower.

The price of oil today is also at unrealistic levels. It is up almost five times in the last five years, although consumption has increased only marginally. Most traders are buying it not because they intend to take delivery, but because they are certain of selling it later for a profit. As and when market sentiment changes, prices will certainly come down to realistic levels.

California Town Seeks Bankruptcy Protection.

The city of Vallejo, located about thirty miles northeast of San Francisco, filed for bankruptcy protection Friday. The city faces a $16 million deficit in its fiscal year starting July 1st, caused by increasing employee costs and declining tax revenue.

The City Council voted to seek bankruptcy protection on May 6th after negotiations with its police and firefighter unions failed. Vallejo's finances have come under pressure from the foreclosure crisis and the current economic downturn as revenues from sales tax, property tax and development fees have declined sharply.

Most residents and officials blame the high salaries and benefits of the city's police force and firefighters for the current economic crisis.This is denied by the police and fire fighter unions who claim their emoluments are in line with other Bay Area cities. They claim the financial crunch is due to financial mismanagement by successive city councils.

Vallejo is the largest California city to file for bankruptcy protection, and the first to do so because expenses exceed income. Earlier in 1994, Orange County filed for bankruptcy protection because it lost money in bad investments, and in 2001 Desert Hot Springs filed after losing a lawsuit.

A June 9th deadline is to be set for creditors to challenge the filing. If there are no objections, the city automatically enters bankruptcy protection.

Sue OPEC, If Gas Prices Don't Come Down!

Strange but true. The House passed a bill Tuesday which allows the Justice Department to sue OPEC members for forming a cartel and setting crude prices worldwide. The best part is , the vote was 345 to 72, a big enough margin to make a Presidential veto meaningless.

It also allows the Justice Department to look into complaints of gas price gouging and energy market manipulation. Oil company mergers will also require approval to ensure they don't impact prices.


The bill was sponsored by Democratic Rep. Steve Kagen of Wisconsin. He says,'The bill guarantees that oil pries will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities.'

The White House on its part feels that if damages are awarded against any OPEC member, the cartel may hit back by further cutting output, causing a further rise in oil prices. Many of the refineries in the US are owned by foreign state owned oil companies. Further investment in these refineries may also get hit, it fears.

The bill now goes to the Senate An earlier legislation on similar lines had been passed by the Senate earlier,but the provision of being able to sue OPEC was removed at the insistence of the White House.

The bill does not specify how the Justice Department can recover the money awarded as damages.

Housing Slump May End Sooner Than Later.

The Commerce Department reported Friday that housing construction rose by 8.2% in April, the biggest increase in more than two years.The growth came from a big jump in apartment construction which increased 36%. The larger single family home sector however dropped by 1.7%. Application for building permits, considered a good sign for future activity rose by 4.9%, the first gain in five months. Overall housing construction activity was still 30.6% below the level of activity a year ago.

The slump in the housing sector is one of the factors which has almost pushed the US economy into recession. Economists feel the rebound is temporary. They say the sector will remain under pressure until the backlog of unsold homes is cleared, and consumer confidence which fell to a 28 year low of 59.5 in early May shows improvement.

Lawrence Yun, chief economist with the National Association of Realtors thinks otherwise. He admits that although the first half of 2008 has been weak, the second half of the year should see an improvement which could lead to a home value growth of more than 20% over the next five years. Delaying the recovery is the hesitation of lending institutions to finance home sales unless strict conditions are fulfilled. The high foreclosure rate and adverse media comments are other factors affecting home sales, he says.

Yun points to California which is one of the states worst hit by the foreclosure crisis.He says the market there is showing signs of turning around. 'The hardest hit market is showing signs of recovery, that is signaling to the rest of America that the worst conditions will pass. I think there will be more confidence about entering the marketplace.'

Political parties are reported to be close to a deal that will allow the federal government to insure up to $300 billion of refinanced mortgages. A tax credit which could give home buyers up to $7000 in incentives to buy a house is also proposed. In spite of a veto threat by President Bush, committee Chairman, Democratic Senator Christopher Dodd remains confident that a deal can be worked out.

Microsoft Offers Fresh Deal To Yahoo.

Putting an end to speculation that it had persuaded Carl Icahn to launch a battle for control of Yahoo, Microsoft announced Sunday that it is in fresh talks with Yahoo for another deal. The present offer is rumored to be for a deal which stops short of a full acquisition. Analysts feel that such a deal may be in Yahoo's interests. Says Troy Mastin,'If they structure a deal correctly, they might still be able to retain a lot of the control and autonomy that they have today.'

Yahoo meanwhile stuck to its familiar line that it is open to any offer which is in the best interests of its shareholders.

A deal between the two companies is likely to be a win-win situation for both of them. Yahoo on its own has not been going anywhere on its own for some time now, and Microsoft is desperate to penetrate the internet, a market which it had ignored till now. Online ad sales reached $41 billion worldwide last year, and they are projected to double by 2010.

According to reports, under the proposed deal Microsoft will place advertisements alongside Yahoo's search results in order to fight competition from Google. The details of the deal are expected to become known this week.Carl Icahn's reaction to a sort of joint venture between Yahoo and Microsoft will also be known. Whether it would satisfy him , or he would still insist on a complete buyout of Yahoo remains to be seen.

America May Never Leave Iraq Because Of Its Oil.

Iraq holds more than 112 billion barrels of oil, the world's 2nd largest proven oil reserves after Saudi Arabia. Iraq also has 110 trillion cubic feet of natural gas. The US Energy Information Administration estimates that 90% of the country remains unexplored. These regions could hold an additional 100 billion barrels of oil by a conservative estimate. A study by the Center for Global Energy Studies and Petrology & Associates came up with an estimate of 300 billion barrels, a figure which would give Iraq reserves bigger than those of Saudi Arabia. If these estimates turn out to be true it would mean that Iraq has roughly a quarter of all the world's oil. This means that America's energy security could increase dramatically if Iraq increased oil production to rival that of Saudi Arabia.

After the failed 1990 invasion of Kuwait, Iraq's oil production fell from about 3.5 mbpd to around only 300,000 bpd. Production had recovered to about 2.5 mbpd at the time of the 2nd US invasion of Iraq at the beginning of 2003. Oil production once again fell after the invasion but has picked up of late and is now at 2.4 mbpd, the highest level since the US led invasion. The increase in production is largely due to the improved security scenario in the country. Production is expected to cross the pre-war level by the end of the year. The Iraqi oil minister Hussain al-Shahristani expects production to reach 6 mbpd within the next 4 years.

The Iraqi oil industry has been badly affected by two invasions and almost a decade of sanctions. It needs Western technology for modernization and also fresh investment. Several Western oil companies have shown interest in Iraq, as have others like the Russians, Chinese and the Indians.The Iraqi government is presently working on a legal frame work for foreign investment in the oil industry. Another problem the Iraqi's must solve is how to divide the oil wealth between the different ethnic and religious groups that make up Iraq. The known oil is located mainly in the Kurdish north and the Shiite south of the country. The Sunni dominated areas do not have much oil as of now.

In the run up to the US Presidential elections in November this year, all the candidates are offering hope for an early withdrawal of troops from Iraq, but no definite time-table has been given so far.Even if US forces are scaled back significantly, security duties in Iraq could always be handed over to private contractors like Blackwater, which would amount to a de-facto US occupation of the country.

America's Strategic Petroleum Reserve And Oil Prices.

The Bush administration will temporarily halt oil shipments into the US Strategic Petroleum Reserve(SPR) for the rest of this year, the Energy Department announced Friday. The announcement came 3 days after Congress voted overwhelmingly in favor of suspending the purchases to ease the upward pressure on oil prices.The decision coincided with Saudi Arabia's announcement of an increase in production by 300,000 bpd. On Tuesday the US house had voted overwhelmingly to suspend shipments of about 70,000 bpd to the SPR, which is already 97% full, holding 701 million barrels of crude. The vote was 385 to 25 with 23 members not voting. The Senate had voted 97 to 1 on a similar measure.President Bush has opposed the idea all along as he says the amount of oil being shipped to the SPR is a tiny fraction of US consumption of about 21 mbpd, and has no effect on prices. Nevertheless he is expected to sign the bill. The near unanimous vote reflects the importance of the issue of high oil prices in an election year to Democrats and Republicans alike. It is expected that this may lead to a fall in gasoline prices from anywhere between 5 cents to 25 cents a gallon. President Bush has also gone to Saudi Arabia in an attempt to persuade OPEC members to increase output to help bring down oil prices.

Contrary to the expected price drop, oil traders cheered the announcement by increasing oil prices to a record $127.82 a barrel Friday. The price finally settled at $126.13 per barrel at close of trade. Looks like President Bush was right about this one after all.

If the oil market is apparently defying the principles of supply and demand then what is it that is determining global oil prices presently?The combined production of the 13 OPEC member countries was 31.8 mbpd in April,according to the OECD energy watchdog, the International Energy Agency. Global oil demand for 2008 is expected to average 86.8 mbpd, about 1.2% higher than in 2007. OPEC produces 37% of this oil. Production by non OPEC members is about 63% of global output. OPEC says it has no control over world oil prices. It blames rising demand, tight supplies and the weakness in the US dollar for the high prices.The Saudis are believed to have only about 2 mbpd of spare capacity available with them. They feel that they are in no position to influence world oil prices, and are therefore reluctant to act.

The question is that if OPEC does not control the oil market then who does? F. William Engdahl offers an interesting explanation for it. He says the price of crude oil today is not made up according to any traditional relation of supply to demand.It's controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myth of Peak Oil. It has to do with control of oil and its price.

Maybe his theory deserves a closer look.

The Future Of Wind Energy In America.

Twenty years from now, the US could get 20% of its electricity from wind energy, according to a US government report. The report is the result of collaboration between the Energy Department research labs and industry. The best part is that most of the technology needed is already available. Wind energy currently accounts for only about 1% of US electricity generation.

'The United States posseses abundant wind resources,' said the report by DOE's National Renewable Energy Laboratory. It concludes that a 20% share of electricity production 'while ambitious, could be feasible.'

While most of the technology necessary is available, it still requires improvements to existing turbine technology. The need is there for larger, more efficient wind turbines for land based and offshore installations, as well as more efficient and quieter wind turbines for distributed applications. The entire electricity grid system will have to be re-designed to carry power from high wind areas to other parts of the country.For wind energy to play a role in supplying the nation's energy needs, integrating wind energy into the power grid of the US is an important issue to address. Large amounts of wind energy are located in areas of the US without transmission lines to the power grid, and the natural variability of the wind resources raises concerns about how wind can be integrated into the existing system.

Wind energy posseses significant advantages over conventional fossil-fuel energy sources. Wind is a clean, inexhaustible, indigenous energy resource. Apart from being a renewable resource it is absolutely free, and once the initial investment has been made, it requires very little maintenance as well.The cost of initial investment will also come down significantly once turbines are manufactured on a large scale. Therefore apart from being an energy resource, development of wind energy also has the potential to create local jobs and economic development. Another big advantage lies in reducing carbon di-oxide emissions which cause global warming. If the US indeed does go ahead with this ambitious scheme, the reduction in the levels of this greenhouse gas would be the equivalent of taking 140 million cars off the road.

Last year the cumulative US wind energy capacity reached 16,818 megawatts, with more than 5,000 megawatts of capacity installed in 2007 alone. Wind power contributed more than 30% of the new US generation capacity in 2007, making it the second largest source of new power generation in the nation, behind natural gas. The US wind energy industry invested approximately $9 billion in new generating capacity in 2007 and has experienced a 30% annual growth rate over the last 5 years.

The US does not currently have a federal requirement for a certain percentage of electricity generation to come from renewable energy. There are however incentives to encourage adoption of renewable technologies through tax incentives and production tax credits. Additionally there are 30 states and the District of Columbia that do have renewable energy requirements and targets of various types, many mandating 20% of electricity from renewable sources by 2020.

America: Big Oil And Alternative Energy.

Presently, renewable energy sources such as wind and solar energy, supply only about 6% of America's energy needs, according to the federal government's Energy Information Administration.This figure is expected to grow to about only 7% in the next 20 years.

Focus on alternative energy sources has increased with the current runaway boom in world oil prices. This increase is different from earlier oil shocks, as this time nobody expects oil prices to decline substantially from present levels. Experts feel that a combination of the Iraq war, and increasing demand from China and other booming Asian economies, make a return to the pre-Iraq war levels highly unlikely. With known oil reserves depleting and new reserves becoming increasingly difficult to find and expensive to exploit, oil companies are facing a serious problem. Facing mounting public demand for a kind of 'windfall tax' on the huge profits they are making, Big Oil now seems to feel that the best way to both plan for the future, as well as to deflect public criticism, is to develop alternative energy sources.

But although Big Oil has been making a lot of noise about investing in alternative energy, their investment in this area so far has not been substantial.In fact they have been investing more heavily in the areas of their core business, that is oil discovery and extraction. It appears unlikely that they will invest in alternative energy in a big way as long as oil remains as profitable as it is. In a way it makes sound business sense as well, because why should they invest in fuel from hydrogen, wind power, solar power and other sources which they cannot control. If they cannot control the source these huge profits will disappear.

Some oil companies like Shell and Chevron have invested a few hundred million dollars in developing wind and solar energy sources over the last few years, and they have plans to spend similar sums in future also. But looking to the overall energy demand, their targeted production and investments are very small.

The Democrats accuse the Republicans of being too friendly with Big Oil. They are critical because they say that Big Oil is making record profits, while the average American is getting squeezed. In addition to ending tax breaks for oil companies, they also want them to invest a part of their profits in clean and affordable alternative energy.

The Democrats moved their bill, the Consumer First Energy Act of 2008 on May 7th. The proposals include shifting financial incentives of $17 billion from major oil companies to alternative and renewable programs, and also authorizing federal investigation into price gouging and price fixing. It would impose a 25% 'windfall profits' tax on oil companies that do not invest in increased capacity or renewable energy sources It would also attempt to limit oil futures market speculators by preventing traders from routing transactions through offshore exchanges to avoid disclosure, and by increasing margin requirements on oil futures purchases.

These proposals have come in for strong criticism from the opposite camp. The American Petroleum Institute said in a statement,'New taxes targeting the US oil and natural gas industry would discourage investment in domestic fuel production, threaten US jobs, and penalize the millions of retirees and workers whose pension funds, individual retirement accounts, and 401K investments are invested in oil and natural gas stock.'

Another criticism is that the Democrat plan does nothing to lower prices by promoting oil production. The Republicans are particularly critical of the Democrats' refusal to permit drilling in American coastal waters due to environmental concerns. They feel that technology is now sufficiently advanced to prevent oil spills even during natural disasters. They point to the destruction caused by hurricane Katrina in the Gulf of Mexico and say that in spite of all odds not a single oil spill took place.

The debate continues, and presently the future role of Big Oil in the development of alternative energy sources is far from clear. It appears that they will step in only once it is really profitable to do so.

Oil Prices:The Nigerian Connection.

Not a week passes without some news of either sabotage of Nigeria's oil industry infrastructure, or an attack on the industry's expatriate work force. Although the loss of production is usually insignificant, it permits speculators to drive up oil prices by playing on fears of long term supply disruptions.

Nigeria is the 10th largest oil producer in the world. It is also a member of OPEC.Its economy is largely dependent on this sector which supplies 95% of its foreign exchange earnings. It is estimated that Nigeria has proven oil reserves of about 35.2 billion barrels.The Nigerian government plans to increase the reserves to 40 billion barrels by 2010. Nigeria currently produces 2.1 mbpd of crude. Most of Nigeria's crude is 'light' crude with a very low sulphur content, and its 'Bonny Light' is a highly prized commodity. Most of the production is controlled by major oil multinationals, with Shell accounting for almost half. Chevron and Exxon Mobil are also present. In addition Nigeria also has vast reserves of natural gas estimated at 176 trillion cubic feet. Most of it, along with its oil, is located in the Niger River Delta.It is estimated that at current levels of production Nigeria has enough gas to last another 240 years.

If Nigeria has such abundant natural resources then what is the reason behind the current civil unrest which finds expression in attacks on oil facilities and foreign workers? Till about 50 years back Nigeria was an exporter of agricultural commodities and was self sufficient in food. Today it imports not only food but also most of its fuel. Nigeia stands out as a glaring example of failed governance, largely due to the abundance of its most valuable asset, oil.

The development of the oil industry gradually brought about major environmental changes in the wetlands of the Niger Delta.Roads and pipelines cris-crossing the marshes have disrupted spawning grounds, and construction of oil terminals,modern ports and increased shipping traffic has driven away the fish from shallow waters near the shores into deeper waters. With the destruction of the traditional way of life,unemployment and poverty have become widespread. Recent reports suggest that foreign oil companies have adopted improper strategies to deal with the situation. To start with, they underestimated or maybe deliberately overlooked the likely damage their activities would cause to the environment.Claims of compensation filed by villagers for damages to their land or for land purchases have ben deliberately dragged to court where they linger on for years with no end in sight.They also adopted the strategy of paying off village chiefs for drilling rights with no benefits reaching the common man. The Nigerian oil industry was nationalized in 1971 and the Nigerian National Petroleum Corporation owns about 60% of multinational oil operations onshore. Although government oil revenues have soared most of it is being misappropriated or wasted. It is estimated that almost 70% of Nigeria's oil revenues are being lost in this way.

The first mass protest against multinational oil companies started in 1990, when the popular writer Ken Saro-Wiwa founded the Movement for the Survival of Ogoni People. Unnerved by his popular support, he was arrested on charges of murder, and hanged along with eight of his supporters in 1995. The trial is widely regarded as having been a sham and it is alleged that Shell was also involved.Things have steadily got worse over time and since a few years back an armed group, the Movement for the Emancipation of the Niger Delta or MEND has been carrying out attacks on oil infrastructure facilities, mostly run by Shell, in Nigeria.Oil companies have responded by drilling for new fields offshore where they feel safer.

The situation in Nigeria is turning increasingly volatile, and with oil prices already on the boil, any major disruption in Nigerian oil supplies could drive up global oil prices to much higher levels than at present.

New U.S. Canada Bridge To Promote Trade.

The Ambassador Bridge is North America's most important international border crossing. Built over the Detroit river it connects Detroit, Michigan with Windsor, Ontario in Canada.At the time of its completion in 1929 it was the longest suspension bridge in the world.It was conceived as a privately financed link between the US and Canada, and was built by financier Joseph A. Bower, who hailed from Detroit. The Bower family retained control of the bridge till 1979. On 21st July 1979 they sold the bridge to Central Cartage Company of Detroit owned by Manuel J. 'Matty' Moroun, a billionaire transportation businessman who recognized its true potential. In order to gain control of the bridge he had to fight off a challenge from Warren Buffet.

Canada is the largest trading partner of the US. Since the signing of NAFTA bilateral trade between the two nations has grown to about $489 billion per annum.About a third of the trade, in physical terms, passes over the bridge.Almost 6,200 truckloads of vehicles manufactured by Detroit's Big Three, Toyota and Honda cross the bridge each day. The bridge and nearby ferries and tunnels carry almost $122 billion worth of goods each year.

'Matty' Moroun now wants to build another 6 lane bridge alongside the existing one.Construction is projected to begin in 2010 and will be completed by 2013. The Detroit River International Crossing or DRIC, a joint project of the US,Canadian, Michigan and Ontario governments plans to build a rival crossing about a mile downstream from the present bridge. The reason DRIC wants to build some distance away from the Ambassador is to prevent a single terrorist attack from destroying both crossings.

The need for an additional bridge has arisen because of increasing congestion. Traffic has slowed down both because the number of vehicles using the bridge has increased and also because security inspections put in place following the 9/11 terrorist attacks take time. It is feared that unless a new bridge is put in place, 150,000 new and existing jobs in the region will be put at risk by 2035.

Cuba's Oil Hunt Worries America.

The US has a trade embargo in place with Cuba since 1962, but it made no difference to either Fidel Castro or to successive US Presidents except that it drove up the price of Havana cigars. After the collapse of the Soviet Union, the US government assumed, that cut off from Soviet aid Cuba would soon follow suit. But that did not happen and Castro continued in power till last year, when he was finally forced to retire due to ill health, after seeing off nine US Presidents. Meanwhile US relations with Cuba also remained unchanged.

Now it seems the US may have to rethink its policy towards Cuba. The reason is Cuba has found oil in the deep waters of the Florida Straits. In 1977 the US and Cuba signed a treaty that equally divided the Florida Straits to safeguard each country's economic rights.This included access to large underwater oil and gas fields, believed to exist on either side. In 2004 the Cuban state oil company,CUPET, found oil in the Florida Straits.The North Cuba Basin is estimated to hold 4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas.Although by US consumption standards the reserves are small, they are substantial for a country the size of Cuba.Moreover further discoveries are not ruled out. What is of worry to the US is that China is stepping into the void created by the demise of the Soviet Union.Now it may have to reconcile itself to having Red China as a neighbor in place of the Red Soviets. The second problem is somewhat more worrisome. The US has banned drilling for oil in almost the entire Outer Continental Shelf of the country since the early 1980's. The only exceptions being parts of the Gulf of Mexico and some parts off the coast of Alaska. This is due to environmental reasons. The US does not want a repeat of the Santa Barbara spill in 1969, which dumped 3 million gallons of oil in the waters off California, polluting the beaches for miles and damaging the eco-system.Prohibited from accessing top class US technology and short of cash, offshore drilling is expensive, the Cubans have turned to the Chinese and other nations for help in developing these fields. By not helping Cuba the US may precipitate the exact disaster they want to avoid, as Cuba puts in place cheap and unsafe technology to extract the oil and gas.

Given the impact on the US economy of high oil prices, there are many who think that its time that the US has a re-look at its ban on drilling in its coastal waters. It is estimated that the Outer Continental Shelf has recoverable reserves of more than 115 billion barrels of oil and 633 trillion cubic feet of natural gas. Imagine the stabilizing effect that these reserves would have on current runaway oil prices.

Several influential voices are already demanding that the US rethink its policy towards Cuba, not in the least because it seems that the seas around Cuba are rich in oil. Jonathan Benjamin Alvarado, a political science professor at the University of Nebraska at Omaha says: 'I've always argued that we would keep the Cuban embargo in place until we got to the point where it started to cost us something. Today we're almost there.' He goes on to add: 'Every day the United States puts off making the path into Cuba, the window of opportunity closes a little more. Once Cuba gets to the platform stage of deep-water drilling, the Americans are going to be left out.'

Brazil:The Latest Energy Superpower.

In 1953 Brazil produced only 3% of the oil it needed. Consumption then was minuscule compared to the 2.2 mbpd it guzzles today. Yet at the end of 2007 Brazil turned a net exporter of oil.This turnaround is due to its remarkable success in drilling for oil offshore. Spearheaded by Petrobras, its giant state controlled oil company, Brazil has continuously added to its oil reserves. In the process Petrobras has become one of the world's leaders in ultra deep-water drilling technology, having the expertise to drill the ocean floor under up to two miles of water.

Added to offshore oil is Brazil's achievement in the field of developing biofuel. It is the world's largest producer of ethanol from sugarcane. It hopes to produce 6.97 billion gallons of ethanol this year, and plans to produce enough ethanol by 2025 to meet its entire domestic fuel requirements. Brazil's ethanol program was launched in 1975 by its military dictatorship, to cut dependence on foreign oil, which made up 90% of consumption. Brazil's ethanol industry is sugarcane based and produces 830% more energy than the fuel that goes into its production, compared to an energy gain of only 15% to 25% in manufacturing corn based ethanol as in the US.

Brazil is presently developing the Tupi oil fields in the Santos basin which hold an estimated 8 billion barrels of oil. Commercial production will start in 2009, almost a year ahead of schedule. The Carioca fields will start producing in 4 to 5 years time. Located to the south-west of Tupi, in what are called the Sugar Loaf blocks, they may hold up to 33 billion barrels of oil, according to Brazilian National Oil Agency director, Haroldo Lima. This would make it the third largest oilfield in the world, and marks the largest discovery of oil in the Western hemisphere since 1976. Other promising prospects are also located in the region. US companies such as Chevron and Exxon Mobil are also exploring the area. Brazil plans to increase its crude oil production to 4.2 mbpd by 2015 from about 2.4 mbpd at present. Petrobras plans to spend $15 billion on overseas acquisitions, including refineries, in an attempt to become an exporter of petroleum products rather than merely raw crude.

These new finds have lifted Brazil's reserves of oil and natural gas to 8th highest globally from 17th earlier. What's more, the oil found is the sought after 'light' variety instead of the usual Brazilian heavy crude found elsewhere.

The Sugar Loaf area presents enormous technical challenges of tapping crude lying beneath thousands of meters of rock and salt in an offshore location. But Brazil is confident that available technology is sufficient to develop the Tupi and Carioca oilfields. Petrobras has already announced a capital outlay of $112.7 billion over 5 years for their development. If the need arises this will be suitably increased, it says.

Although the impact of these developments on world oil markets in the short term will be negligible, it is clear that in future Brazil will no longer be limited to a medium size producer, pursuing self sufficiency, and maybe exporting a little. It will be a major player on the international scene, wielding all the influence such resources now command. The most significant result of Brazil's success is that it gives the world renewed optimism for such finds in future as well.

As far as the US is concerned in particular, it may be a welcome development as its dependence on Middle East oil will decrease. Brazil's increased influence may also help counter balance Venezuela's Chavez in Latin America. The Brazilian government has already indicated that it may act more responsibly than other oil rich nations. Its President, Luiz Inacio Lula da Silva has hinted that he wants to join OPEC. He says: 'We want to join OPEC and to try to make oil cheaper.'

House Swapping-Plan A Budget Vacation Today.

If you were wondering how to fit a vacation into your tight budget these days, with the cost of gas being what it is, a house exchange is both convenient and offers big savings. Not only does your lodging, which usually is the major expense, gets taken care of, you can also save money by cooking some of your meals at home. If you are lucky your transportation may also be arranged as many people also include their cars in the exchange.All this will save you enough money for the occasional holiday splurge as well.You also don't have to fret about who will take care of your pet or water your plants while you are away. If your house is occupied it also discourages burglars.

Since the internet came along, exchanges have become easier to arrange and you have a much wider choice. You are able to view the exchange properties online and can be reasonably certain of the deal you are getting into. Nonetheless it does require a certain amount of flexibility and you need to do your homework.

To start with, if you are a family person it is better to get in touch with another family. You understand each others needs. Check with your insurers before you leave. You must find out whether you are still covered if someone else is living in your house or using your car, just in case something goes amiss. Leave behind a list of things to do for running the house, as well as the local attractions. People who wish to exchange should highlight the features of their homes online as well as list out local places of interest. It is a good idea to photograph each room and post them on the home exchange listing.

The downside of such arrangements is that you need to be flexible about timing as well as location. You may either not get an exchange in an area of your choice when you want it , or both. Once you are working out the details with a potential exchanger it always helps to clarify things such as whether he smokes or whether he would be able to look after your pet or not while you are away.You will also have to put in extra work cleaning your house, getting it ready for visitors. Be prepared to find minor accidents and damage when you return. They would have happened anyway even while you were living there.

There are a large number of websites where you can get relevant information. Membership of these exchanges is reasonably priced and an extensive choice is available, from weekend exchanges to long term exchanges and other arrangements.

Ethanol As Alternative Fuel Falls From Favor.

Runaway food prices have compelled some lawmakers to question the policies adopted to develop the biofuel industry.

In order to cut dependence on oil imports Congress has granted the biofuel industry a 51 cents per gallon tax credit and passed a law mandating a five fold increase in output over the next 15 years.This means production is set to increase from 7 billion gallons a year today, to 36 billion gallons annually by 2022. About 15 billion gallons will be produced from corn, and the balance from next generation raw materials such as wood chips, straw, corn stalk and grass.

Presently almost 25% of US corn production is being used to produce ethanol, raising corn prices. Although corn is used to feed livestock, it has put pressure on prices of wheat, soybean and other crops also, as farmers divert divert land to grow corn. Higher corn prices have translated into higher prices for eggs, milk and meat. There is mounting evidence as well that producing ethanol from corn may not be as environmentally friendly as was once supposed, and may in fact lead to an increase in green house gases as farmers clear virgin land, releasing carbon into the atmosphere.

These developments have forced politicians to have a re-look at the ethanol policy. Both Obama and Clinton have asked that it be reconsidered in the light of the current food crisis, while 24 Republican senators including McCain have written to the Environmental Protection Agency asking them to repeal ethanol output targets. Lawmakers also want the subsidy on ethanol production to be scrapped, given the increase in fuel prices and also because the industry has now come of age and can do without the protection.

US farmers on the other hand feel that there is no reason for any controversy.They explain that the area under corn plantation increased 19% last year over 2006. While conceding that the increase was largely met by diverting land under soybean cultivation, they point out that the crop production of 50 bushels of soybean per acre and 150 bushels of corn per acre yields the same amount of oil and protein, i.e. food per acre.The cost of production is also the same. On top of it you get about 420 gallons of ethanol an acre from corn, after extracting the oil, protein and minerals for other uses, which makes it a kind of bonus for free.

The opponents of the ethanol industry are unlikely to succeed given President Bush's support for it, and the importance of the farm states in an election year.But it will certainly hasten the switchover to the production of next generation biofuel from wood chips, corn stalks and grass, which is more environment friendly.

OPEC Hints At Increasing Oil Production As Prices Soar.

OPEC has maintained all along that the market is well supplied with oil and conditions don't call for an increase in output. They say oil prices are rising due to a weak US dollar and because speculators are driving up prices.

Both President Bush and his deputy Vice President Cheney have visited the Middle East this year, to try and persuade OPEC, particularly the Saudis, to help control prices by increasing production. But so far OPEC has only repeated its earlier argument that there aren't enough buyers to justify an increase in production. At their last meeting in March, OPEC members ignored calls from the US and other G-7 members to increase output and decided to leave production unchanged. Oil prices rose to $126.25 a barrel in New York Friday, before finally closing at $125.96 a barrel.

Although high oil prices are hurting consumers worldwide, the US consumer is particularly hard hit because in most emerging economies such as China and India oil prices are highly subsidized, with state controlled refiners foregoing a part of their profits. In contrast oil companies in the US will make an estimated profit of $200 billion this year. Clinton's call that these companies should either pay a 'windfall tax' or invest in developing alternative sources of energy seems to be a fairly reasonable suggestion after all.

There are finally signs that despite the obvious economic benefits of soaring oil revenues and increasing geo-political influence, OPEC is getting uneasy over runaway oil prices. They are fully aware that if world economic growth slows down, as it most certainly will if oil prices do not come down soon to reasonable levels, and oil prices start moving downwards, they would be able to do very little to stop the slide. After all in 1998 after the Asian economic crisis prices went down all the way to $11 a barrel. It is all a question of sentiment really. Presently traders fret about tight supplies and drive up prices. If they start focusing on a global slowdown instead, they can just as easily drive prices down. Oil is not an infinite resource. Most OPEC members will be without oil in another 20 to 30 years.They must understand that it is in their interest as well to have a stable world economic order. Violent fluctuations have historically destroyed wealth. They are particularly vulnerable as they are bankers to the world, lacking the geographical size as well as the population to absorb all this wealth. They need a steady and predictable stream of income from investments to sustain their population in the absence of any other worthwhile resource or technical skills.

Before President Bush leaves yet again for the Middle East next week, a senior Libyan oil official Shokri Ghanem has made a statement that OPEC may not be inflexible in future about increasing output.'We would consider among other options the possibility of increasing output as a way to ensure market stability. I expect a meeting before September. I am not calling for one, but I would support one,' he said. It is estimated that OPEC would have to increase output by at least 500,000 barrels per day to have any significant impact on prices. This should not be difficult as OPEC members currently have about 2 million barrels per day of spare capacity available with them.

Where Do Oil Prices Go From Here.

Crude oil prices have hit another record high on Friday, trading at almost $126 a barrel. Anticipating increased demand during the American driving season, and tight supplies, crude reached $125.98 a barrel in European trade this afternoon. What is most surprising is that oil prices go up even on days when the US dollar gains versus other currencies and irrespective of whether US weekly inventories show a build up. What's more US refinery capacity utilization has fallen to 85.4% this year from 87.6% last year. Although most of it is due to regular 'spring maintenance', refiners say that part of it is due to falling demand for gasoline and heating oil.The latest trade figures released today seem to confirm this as they show that the US foreign oil bill fell by 5.9% for the month of March this year.

Many experts would have us believe that pries are increasing simply because supply is unable to keep pace with demand. They explain that unlike the energy crises of the 1970's and 80's which were caused by supply disruptions, the present crisis is led by a surge in demand. World demand, they argue, is increasing, and any minor fall in US demand is more than offset by rising demand in China, India, and the Middle East. They point out that non-OPEC supply has fallen below expectations, primarily because of a fall in Russian output. They go on to warn that without any meaningful additions to production capacity somewhere in the world, or without development of viable alternative energy sources, oil prices are not going to decline.

But there is a growing number of analysts who don't buy the above argument. They are convinced that oil is now trading 'ex-fundamentals.' So what is really going on? They say that oil is now in a ridiculous bubble. They pin the blame for the present rise on the prediction by Goldman Sachs that oil will hit $200 a barrel in a couple of years.This is conceded by many traders in the Nymex pit. Speculative momentum has built up in oil futures to such an extent that computerized buying kicks in on every dip in prices.Investors today seem to feel more comfortable holding oil futures rather than holding financial instruments, real estate or even the US dollar.They have lost faith in both the US economy as well as the US dollar. The state of the US economy is a subject of daily discussion. As far as the dollar is concerned , it has lost almost 84% in value against the euro since 2000! Bush's economic policies and the Iraq war are finally beginning to take their toll. Nevertheless these factors alone cannot explain the extent and the speed of the rise in oil prices. Oil was trading at about $25 a barrel shortly before the US invasion of Iraq in March 2003. Even last year in April it was around $70 a barrel. The extent and speed of the price increase, without an apparent change in fundamentals, has taken everyone by surprise.

It is this behavior of oil prices which raises the suspicion that powerful cartels are manipulating oil prices in much the same way as companies such as Bear Stearns and others manipulated the financial markets across the world. Most experts predict that this bubble will also burst like all bubbles do, and oil prices will finally settle well below $100 a barrel.

Credit Card Industry Protests Against Proposed Regulation.

Federal Reserve officials expect final credit card regulations aimed at protecting consumers to be rolled out by year's end. Sandra Braunstein, the Fed's director of consumers and community affairs, said that the Fed would combine new regulations under the Truth in Lending Act and the Federal Trade Commission Act. She said the Fed had examined issues of increasing rates on existing balances, payment allocations, double cycle billing, timeliness of statements and giving people adequate time to pay.

Several regulatory agencies, including the office of Thrift Supervision, are expected to issue their own regulations to cover narrower segments of the banking industry. Edward Yingling, president of the American Bankers Association has said in a statement that the Fed's proposals represent "an unprecedented regulatory intrusion into marketplace pricing and product offerings." He said the measures would "result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards." In other words, if the industry has to follow the proposed rules, they will offer fewer credit cards to people!

The proposed regulations in addition to other things, would require card issuers to mail out statements at least 21 days before a payment's due date and prohibit issuers from applying partial payments only to balances with the lowest interest rates thus leaving costlier, higher rate balances intact.

The credit card industry is unlikely to be able to carry out its threat. Last year it sent out 5 billion solicitations to U.S. households. How far can it scale back? In fact if banks decided to stop issuing cards to people with poor credit histories it might do a lot of good. Americans today carry $951.7 billion in revolving credit card debt, up 5.9% from a year ago. The average credit card debt is about $8,000. Yingling considers the Fed's proposals to be "particularly perplexing" because they would result in "a reduction in credit availability at the very time the Fed is working to increase credit in the marketplace."

This is only an idle threat. The banks make good money in credit card penalty fees. Last year they collected a record $18.1 billion on this account. They aren't going to do anything that hurts their interests. The sooner the regulations are in place, the better it will be for everybody. The banks have had it their way for far too long.

Bernanke Warns White House Over Mortgage Crisis

Fed Chairman Ben Bernanke said Monday in a dinner speech to Columbia Business School that "High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy." He added, "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

Bernanke called on Congress to give the Federal Housing Administration more flexibility to help borrowers at risk of losing their homes. He also called for a strengthening of government sponsored mortgage finance enterprises Fannie Mae and Freddie Mac. "Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," he said.

Bernanke's comments must be viewed against the backdrop of a bill passed last week by a congressional panel, which would enable the government to finance $300 billion in distressed mortgages. The bill is supposed to prevent 2 million foreclosures. But the Bush Administration is opposed to the measure saying that the burden of the bailout will fall on the ordinary taxpayer if a significant part of the loans refinanced by the government go bad.

It is exactly this attitude of the White House that has invited criticism from everybody. The Democrats have claimed time and again that the Bush administration has been willing to consider policies that help companies and not troubled homeowners. They are quick to point out that the economic policies followed by the present government have only benefited big business and the rich, while ignoring the common man.

Now it seems that Bernanke too is saying that the Democrats may well have a point. Although he stopped short of endorsing the bill in his speech, his message is loud and clear. Act now or it may be too late.

US Economic Outlook Presents Confusing Picture.

Economic activity in the non-manufacturing sector expanded in April, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report on Business. The Non-Manufacturing Index or NMI increased 2.4% to52%,indicating expansion within the non-manufacturing sector for the month of April 2008. This comes after three consecutive months of decline. Twelve non-manufacturing industries reported growth in April. The comments of the members are mixed and vary by industry. The inflationary pressures of rising energy and commodity prices are of major concern to the members.

Economists had expected the April index to come in at 49.3. Areading below 50 indicates contraction.So what do the present numbers indicate?When viewed alongside last week's rise in April factory orders you get a somewhat confused economic picture. On the one hand the services and factory indicators say that the economy is not as weak as it was perceived to be.On the other hand the housing slump continues , and along with the weakness in the financial sector, threatens to be a drag on economic growth in the coming quarters. Fed Chairman Bernanke warned Monday:' High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy.' He added that a widespread decline in home prices is a relatively novel phenomenon, and lenders and loan servicers will have to devise new and flexible strategies to deal with the issue.Bernanke called on Congress to move quickly on legislation expanding the Federal Housing Administration and strengthening government sponsored motgage finance enterprises Fannie Mae and Freddie Mac. 'Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy,' he said.

Do Our Financial Institutions Need Greater Regulation?

The US mortgage meltdown has been grabbing world business news headlines for months now. There was a time in mid March this year when the world financial system seemed to be at risk.The extent of the crisis came to light when Bear Stearns was about to go bust, and would have almost certainly done so, had not the Fed stepped in. Bear Stearns has disappeared for good, taken over by JP Morgan, but the financial system has survived. The Fed took a bold decision and became a lender of last resort to investment banks also, in addition to commercial banks.It offered hundreds of billions of dollars worth of liquid securities in exchange for illiquid securities, that these banks were saddled with, as collateral. Other measures were also taken to boost liquidity in the financial system.

The net result has been that the financial crisis no longer appears as threatening as it once was. Warren Buffet said Saturday,'The worst of the crisis in Wall Street is over.' He supported the action of the Fed in bailing out Bear Stearns, terming it to be 'proper.' While revealing losses on derivative contracts at the annual meeting of shareholders of Berkshire Hathaway, he said he was confident that these contracts would return substantial profits in the long run.

Since on March 16th the Fed became the lender of last resort to investment banks, it follows that these securities firms must start working as safely as commercial banks. This implies greater supervision of their activities, particularly of their SIV's , or structured investment vehicles. It must be understood by everyone that risky assets held off balance sheet pose as big a risk to their parent companies as similar assets on the balance sheets. They are held off balance sheet only to avoid regulatory supervision.The example of Enron is not very old, and the present crisis has thrown up numerous instances from Citigroup to Merrill Lynch, who have survived only by selling part of themselves to sovereign wealth funds from the Middle East and Asia.

The next issue which needs to be addressed is of excessive leverage. Bear Stearns had leverage of about 35 to 1, while the normal leverage for banks is 10 or 12 to 1. It had built up total positions of about $13.4 trillion,which is greater than the US national income , or equal to a quarter of world GDP. All this was built up on an asset base of about $80 billion only! The moment the value of the underlying asset base declined slightly, the entire structure collapsed, as investors pulled out their money.If such activities are controlled this would drastically reduce the profitability of such investment banks and also reduce their size, but it would be a small price to pay for the security and stability of the financial system.

First Round To Yahoo As Microsoft Blinks.

About a month ago Steve Ballmer had issued a threat to Jerry Yang of Yahoo. Accept Microsoft's unsolicited buy out offer of $31 per share or be prepared for the consequences! Ballmer had given Yang till April 26th to accept the offer or face a hostile takeover. He had hinted that in case of the latter event Microsoft may even lower the price offered. 'If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal,' he wrote in a letter to Yahoo.

26th April came and went and nothing happened. In the meantime Jerry Yang said nothing except that his company was worth much more and that he expected its cash flow to double over the next three years to $3.7 billion.

Now the news is out that Microsoft has boosted its offer 'by several dollars a share,' lending weight to the prediction by many analysts that Microsoft can afford to pay up to $35 a share.

How has Yahoo managed to outwit Yahoo so far? Jerry Yang has played his cards remarkably well.To start with he has protected his company with a 'poison pill' takeover defense which makes a hostile takeover very expensive. He also has an employee payout plan that will be triggered by a change in ownership, raising the cost of acquisition. There were also rumors that Yahoo was close to a deal with AOL. He also entered into an agreement with Google, allowing it to serve its ads on Yahoo's search pages. He gave a clear signal that if pushed too far he would not hesitate to sell off a part of his company and use the cash for a share buy back, driving up their price. This would have both appeased disgruntled shareholders , as well as raised Microsoft's purchase price.

Microsoft on its part had entered into some sort of an agreement with Rupert Murdoch's News Corp, so that Yahoo may not find a rival buyer for itself. This strategy seems to have failed.

It is rumored that several Yahoo shareholders would be satisfied with $35 a share. Microsoft had offered $40 a share for Yahoo in early 2007, but given Yahoo's troubles since then it is unlikely that price will be offered again.

There is still a long way to go. Even if a deal is reached, Google will continue to dominate the internet search market in the US where it has an almost 2/3rd share compared with 9.45% of Microsoft and 21.3% of Yahoo. Meanwhile Yahoo shares jumped almost 7% to $28.67 a share in trading Friday, as the news broke. Microsoft shares closed almost flat at $29.24 a share.

Railroads Stage A Comeback As Oil Price Rises.

The US transportation system developed oil dependent highway and air travel while neglecting other forms of transportation.This system worked fine as long as oil was cheap, but now that oil prices are not only rising but shortages are also foreseen, previously ignored methods of transportation are being given a second look.

The railroads declined as in the 1980's a large number of low cost, non union trucking companies entered the market.The railroads could not face the competition then.But now they seem to have got their act together. Computerization and improved efficiency have led to increased labor productivity.Improved technology and natural attrition over time has allowed them to shed excess labor, leading to improved profitability as well.

Thanks to booming global trade and rising fuel prices, it takes three times as much fuel to transport goods by truck as compared to railways, industry profit has doubled since 2003. This improved profitability is reflected in the share price of these companies. Ambitious investment programs have been chalked out to add track and terminals to handle the increased traffic. According to the Transportation Department, freight tonnage is expected to almost double by the year 2035. But passenger rail has continued to lag behind, although of late commuter lines have seen increased traffic. The reason for this is that America lacks a well developed passenger rail system that is both efficient and reliable. The European railway system holds important lessons for us.In fact their TGV system is faster than flying, over short distances. The railway industry, because of relative fuel efficiency compared to road transportation, is also projecting itself as a more eco-friendly alternative.

In an interesting study, Harvard Professor John R. Stilgoe predicts a resurgence in railroad development. Basing his arguments on the increase in real estate prices along railroad lines he has predicted that the time is not far off when motorists will switch to rail travel on a large scale because the savings in the cost of travel will become substantial.

OPEC Rejects Calls To Increase Oil Output.

Oil ministers from 12 OPEC members along with chief executives of major producers have gathered in Rome for the 11th International Energy Forum amid political calls to increase production. The three day conference starting Sunday April 20th will focus on access to energy resources, the security of supplies, issues of investment and development of renewable sources of energy. However OPEC Secretary General Abdullah al-Badri said on Saturday that he did not think OPEC ministers will meet together when they attend the IEF.

OPEC's President Chakib Khelil has said that any increase in production now will not have an impact on prices because there is a balance between supply and demand.High prices are result of an economic crisis in the US and the decline in the value of the US dollar he added.The producer group has about two million bpd of spare production capacity, mainly in Saudi Arabia.

International oil companies are trying to gain access to new energy resources.This comes against a backdrop of resource holding nations, led by Venezuela's President Hugo Chavez, trying to maximize the returns from their energy resources. Presently international oil companies account for about 24% of world oil and 35% of gas production. This is down from about 80% in the 1970's. Today they control about 6% of world oil and 20% of gas reserves, down from nearly 75% earlier. Although this situation is unlikely to change, state oil companies still need them for their pool of skilled staff as well as sophisticated technology which is required to develop more difficult fields.

Oil Price May Rise To $125 Per Barrel!

Legendary oil investor T.Boone Pickens warned Thursday, that crude oil prices are still headed upward and could top $125 a barrel in the short term.US crude futures touched a record $117 a barrel Friday, before retreating slightly. Pickens expects US natural gas prices to rise from the current level of $10 per million British thermal units to $12-$14 this winter, a further rise of 20%-40%.

Pickens feels the rise is inevitable given increasing demand and stagnant world oil output. Oil prices have gone up almost five times since 2002 due to increasing demand from China and other emerging world economies. Global output has not kept pace, and is unlikely to rise above the current 85 million bpd while demand is likely to reach 87 million bpd later this year.

Experts have been forecasting a peaking of oil production for a long time. Although some experts feel that production has already peaked around the year 2005, most of them believe that the peaking will occur sometime between 2010-2020. Shell however says that production will peak only after 2025 while Exxon Mobil says that currently there are no signs of peaking.OPEC on its part goes to the extent of saying that no such prediction can be correctly made.

All such forecasts are based on differing geological assumptions, and details are rarely given. No one knows when such peaking will occur because the data needed for an accurate forecast is kept secret by oil exporting countries and companies. In any case the world will do well to remember that oil and gas reserves are a finite resource and given even the most optimistic scenario there will come a time when oil production starts declining, maybe 10 to 20 years later from what is being predicted now.

So what can be done to tackle the problem? Peaking oil production presents the world with an extremely complex problem. It also requires that steps towards a solution be initiated at least 20 years in advance to prevent any large scale disruption of energy supplies. It is estimated that this would require an investment of more than $20 trillion from now till 2030 in the energy supply infrastructure. Similar investments will also need to be made in developing alternative sources of energy. Unless such a massive effort is undertaken, the days of cheap and abundant energy may well be over for good.