$2.5T in Global Wealth Wiped out in ONE WEEK

Amplify’d from www.theglobeandmail.com

The cost: $2.5-trillion wiped off world stocks

More than $2.5-trillion have been wiped off the value of world stocks this week on mounting concerns the global economy is heading towards another recession and Italy and Spain are being engulfed by the euro zone sovereign debt crisis.

The sum wiped off the MSCI All-Country World Index is almost equivalent to the size of the entire French economy.

The MSCI All-Country World Index is down 8.6 per cent this week, on track for its biggest weekly percentage fall since November 2008.

The U.S. S&P 500 index alone has lost more than $840-billion from its market capitalization this week, while European equities measured by the MSCI Europe have lost more than $817-billion.

“These are markets to be careful (in), not to try and be a hero,” Royal Bank of Scotland chief executive officer Stephen Hestor told reporters after the bank announced its first-half results.

Credit Suisse on Friday cut its year-end target for the S&P 500 to 1,350 points from a previous forecast of 1,450. The new estimate was still 11 per cent above Thursday’s close of 1,200.07.

The Swiss bank also cut its forecast for U.S. companies’ 2011 average earnings per share (EPS) to 12 per cent growth from 14 per cent and for firms in the euro zone to EPS growth of 7 per cent from a previous estimate of 12 per cent.

However, not all were bearish.

Ralf Groenemeyer of Silvia Quandt Research said authorities may act soon to arrest the slide.

“We expect governments and central banks to act over the weekend ... It should not be ruled out that some kind of ‘quantitative easing’ measures emerge,” Mr. Groenemeyer said. Read more at www.theglobeandmail.com

 

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Pentagon Budget Cuts Coming in 2012

This is a good thing.

Amplify’d from www.bloomberg.com

Pentagon Grocery Stores, Troops May Lose in $825 Billion Cuts

The Pentagon’s chain of subsidized grocery stores to major weapons systems and troop strength may be on the chopping block to pay for as much as $825 billion in budget reductions that Defense Secretary Leon Panetta said would inflict “real damage” on the U.S. military. The Defense Department is facing the largest reduction in spending since the end of the Cold War, when military budgets declined by about 35 percent in constant dollar terms between 1985 and 1998, according to Pentagon data. To meet its targets, the Pentagon may have to consider cuts in a range of programs, from the number of F-35 fighter jets to the $9 billion in subsidies for the Defense Commissary Agency, which operates 252 grocery stores around the world. Reducing the size of the 1.43 million active duty forces may yield the most savings. President Barack Obama signed a measure Aug. 2 raising the $14.3 trillion U.S. debt ceiling until 2013 and reducing $2.4 trillion in spending over the next decade. The deal requires $325 billion reduction in the defense budget in the first phase over 10 years. Officials would begin by eliminating $28 billion from the 2012 budget request. Another $500 billion in military spending may be cut over the next decade, for a total of $825 billion, if a special committee of lawmakers can’t agree by November on $1.2 trillion in deficit savings. That spending reduction would “trigger a round of dangerous across-the-board defense cuts” that may do “real damage” to the U.S. military, Panetta said, calling it a “doomsday mechanism.” Menu of Options The Pentagon already is conducting a review to identify programs that will meet the $325 billion goal, he said. Cutting another half a trillion dollars would produce an outcome that “would be completely unacceptable” and no contingency plans to do so are under consideration, Panetta said yesterday at a news conference. Still, as the Defense Department is forced to excise programs, it has a menu of options that several studies have identified over the years, said Gordon Adams, a professor at the American University in Washington. The choices range from about $31.2 billion in weapons cuts identified in November by former Senator Alan Simpson and former White House Official Erskine Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, to $1 trillion in reductions that Senator Tom Coburn, an Oklahoma Republican, laid out in his July report “Back in Black.” ‘Done this before’ Defense spending typically declines when wars end, Adams said. In constant dollars, the Pentagon’s budget declined 40 percent between 1952 and 1958 after the Korean War buildup, according to Defense Department data. “We have done this before,” said Adams, a former official in the White House Office of Management and Budget during the Clinton administration. “Even at $800 billion below what is currently forecast for defense, the sky does not fall and the U.S. military will survive.” Defense spending, including war costs, rose to $717 billion in fiscal year 2010, or a 92 percent increase from 1998. From that peak, an $825 billion reduction in projected spending over the next 10 years would approximately amount to an 18 percent decline in nominal terms or 34 percent in constant dollars, according to a Bloomberg Government analysis. The projections don’t include future war-related spending while the White House estimates include $50 billion annually for conflicts through to 2021. The cuts may mean the Pentagon has to scale back its strategy for fighting two conventional wars as well as worldwide counterinsurgency missions, Adams said. Troop Strength The U.S. has about 1.43 million active duty military personnel, including 570,719 in the Army, 335,038 in the Air Force, 328,227 in the Navy and 201,466 in the Marine Corps, according to the Pentagon. For every reduction of 10,000 military personnel the U.S. saves about $1 billion annually, said Adams. Former Defense Secretary Robert Gates in January said the Army strength will be reduced by 27,000 starting in 2015 and the Marines’ head count will decline by about 20,000. Both services may have to cut more, Adams said. Reforming the Pentagon’s health care and military compensation system may yield additional savings, Adams said. Still, lawmakers shy away from the measure because it reduces benefits, Adams said. “That’s the third rail.” The Congressional Budget Office in a June 2009 report said reforming the military’s Tri-Care health-care system could save as much as $60 billion by 2020. F-35 Jets Reducing the military’s strength may allow the Pentagon to avoid buying new weapons and equipment needed for a larger force. Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighter, the Pentagon’s largest program at $382 billion, is in the crosshairs of several deficit-reduction studies. None of them have been endorsed by the Pentagon. Canceling or delaying the U.S. Air Force version of the F- 35 jet and replacing it with a more modern version of the F-16 plane, also made by Lockheed, would save about $47.9 billion, according to “Debt, Deficits, & Defense,” published in June 2010. The report was prepared by the Sustainable Defense Task Force, whose members were drawn from 14 think tanks including the Cato Institute, the New America Foundation and Taxpayers for Common Sense. The Pentagon plans to buy 2,443 F-35 planes whose development has been delayed and costs have grown. V-22 Osprey The Task Force and the Bowles-Simpson proposals also recommended eliminating the Expeditionary Fighting Vehicle developed by General Dynamics Corp. (GD) for the Marine Corps. Gates agreed, cutting it out of the Pentagon’s 2012 budget proposal that is awaiting congressional approval. Both panels proposed capping production of the V-22 Osprey, a Marine Corps tilt-rotor aircraft made by Boeing and Textron Inc. (TXT), at 288 planes. Sikorsky Aircraft Corp.’s MH-60 Black Hawks could be substituted, they said. Halting V-22 production would save as much as $12 billion, the Debt, Deficits & Defense study said. The Pentagon intends to buy another 122 V-22s valued at about $8 billion in addition to the 174 already on contract, Sean Stackley, the Navy’s top weapons buyer said. The number of Navy aircraft carriers may also decline from the current 11. Spending cuts may extend beyond people and weapons to other expenditures not directly tied to military operations. Grocery Stores If the Defense Commissary Agency were a private corporation, it would be one of the largest grocery-store chains with about $6 billion in annual sales, Coburn said in his report. Previous administrations have attempted to eliminate the subsidy and failed because retirees including military chiefs of staff are loath to give up that benefit, Adams said. Reducing overhead costs alone may contribute as much as $120 billion of defense spending, Gates said on his last day in office. Such costs were $212 billion in the 2010 fiscal year, larger than the gross domestic product of Israel, a July 2010 report prepared by the Defense Business Board said. Its members include management consultants, former executives of defense contractors and retired defense officials. The group, whose annual operating cost is about $750,000, advises the defense secretary about “best business practices,” according to its website. If the overhead cost was a “separate country, it would rank 49th in GDP” among the world’s nations, the advisory board said. To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net. Read more at www.bloomberg.com

 

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Currency Wars During Global Slump

Amplify’d from globaleconomicanalysis.blogspot.com

Global Currency Wars Enter New Stage; Brazil Calls Off Truce, South Korea Reviews "All Possibilities", Philippines Threatens "Prudential Limits"

Fighting the Fed has reached a new stage: all out currency wars. The Fed is desperate to tank the US dollar to stimulate exports and further fuel a stock market that is clearly back in bubble territory. However, central bankers in other countries have had enough. Japan and Switzerland intervened heavily in the forex markets on Wednesday. Other countries, fed up with Fed policies and a weak dollar now threaten to do the same. For a recap Wednesday's intervention news, please see

Quantitative Easing Begins in Switzerland to Counteract Soaring Swiss Franc, Central Bank "Aims to Bring 3-Month LIBOR to 0%"; Gold Soars

Japan Intervenes, Yen Plunges; What's Next?

“We seem to be entering a new stage of the currency wars where it’s not just the emerging markets that are responding to broad dollar weakness,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore, who has written books on currency markets. “Expect much more intervention in the future and further acrimony in terms of how the U.S. dollar is doing.”

Brazil Calls Off Truce, South Korea Reviews "All Possibilities", Philippines Threatens "Prudential Limits"

Japan sold yen today, causing the currency to weaken as much as 3.1 percent against the dollar after rising 5 percent last month. Brazil’s Mantega said Nov. 30 that his nation’s currency was trading at a reasonable level as Europe’s worsening debt crisis brought a “temporary truce” to a global currency war. Since then, the real has gained about 10 percent against the dollar, and Mantega said last month that the so-called “war” was still on. South Korea’s government is reviewing “all possibilities” on curbing capital inflows, Finance Minister Bahk Jae Wan told reporters in Seoul today, adding that he’s “closely monitoring” the situation, while declining to comment on the impact of Japan’s intervention. The Philippines is prepared to impose controls to cap volatility in the peso after its currency rose to a three-year high this week, central bank Governor Amando Tetangco said in an e-mail late yesterday. The bank “will not go against the fundamental currency trend but will not hesitate to use tools, including imposing prudential limits on certain transactions of banks,” he said.

sia-Pacific Reversal Asia-Pacific Equity Markets initially responded to the intervention in a positive manner. That action has now reversed. Bloomberg reported "Yen Slumps After Japan Intervenes to Curb Rise; Most Asian Stocks Advance" but "Most Asian Stocks Advance" is now missing from the title. Asia-Pacific Snapshot Australia, South Korea, and Taiwan are all down well over 1% each. Nothing is up by even .25%. US S&P 500 futures we up over 10 points but are now slightly red although Europe is slightly green. To update the chart click on Yahoo Finance Major World Indices Time For Decisive Action At times like these, there is only one thing to do: Call out Tim Geithner for a reiteration of the "US Strong Dollar Policy". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Read more at globaleconomicanalysis.blogspot.com

 

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Everybody is Tied In - globalization and consumption

It will be extremely hard for us, humans, Americans, citizens, employees, employers, etc to drop our addiction to consumption enabled by globalization and oil.  That's our greatest enemy, our greatest peril, ... ourselves.

Efficiency Didn't Solve Our Consumption Addiction

Joseph Tainter PhD
anthrpologist, historian
author, The Collapse of Coplex Societies

Jevins paradox. William Henry Jevins - incr effi in use of the resource, ultim more gets used than ever before.

After the oil shocks of the 1970's, energy efficiency increased dramatically with innovation and technology, and hard work, and effort.  However, then in the 1980's the price came down and we increased our consumption again.  Like an addict with no discipline. Like an adult with bad habits.

Peak oil crisis. Find a transition liquid fuels.. growing gap, etc.

TV made it look exciting and fun.  Celebrities did the same.  And all our friends

Oil and auto companies spent a lot of money trying to convnince us there are no pollution issues with autos and petroleum related health issues.

The oil pollution

The more time you spend in traffic, the dumber you are to this obvious fact.  Either in the air, on the ground, in your car, on a plane, train or any automibile in a crowded city.

Even if we believe in a miracle to bail us out, we dont plan for the earth taking action itself.  Earthquakes.  Tornadoes.

Wild dislocation creates recession and inflation, STAGFLATION.  Classic economic policy making fails when both a reciession and inflation meet at the same time.

Catch 22: there are too many people on the planet overconsuming and we need to fix the problem immediately they need to volunteer into the solutions.  They cannot be forced.  For that you have to have faith that if they are educated, if they are told the truth, they will learn to handle it.  Remeber it will take time.  Just as we cannot put the whole story into a single 2 hr movie, the same person who is veiwing the movie wont get the whole message.

Hierarchy is the patterm played out across 500 years and the melding of coirporation and state power with violence.  this ia fascism.  That is our culture.  Not just our governmnt, not just our corporations, the whole thing put together.

Pushing the Plane tto the Tipping Point.

Rational and Meak People - Making Bad Decisions, Make Believe

Some are pretending its not real but thats because its the easiest way to be.

We think money and wealth is the most important thing.  Our institutions, our culture keep us locked into this trance.  Our economic stories.

fundamentla rethinging of eexxxx

David Korten, When Corporations Rule the World

Economic growth is really about rich people expropriating poor people's resources and property, turning itno garbage, to makes more money for rich people, which gives them more power relative to the people who do not have property, are not participants in the financial ownership, and the financial games that are played.

Depending on which economic story you believe in, you will pick sides.

The Quiet Revolution: Latin America Moving Away from Washington’s Influence | Oil Price.com

The Quiet Revolution: Latin America Moving Away from Washington’s Influence | Oil Price.com

The Quiet Revolution: Latin America Moving Away from Washington’s Influence

Written by John Daly

Monday, 01 August 2011 12:22

Message : Investors: Free Oil Industry Investment Report - Our Fracking industry guide shows you the strategies that will enable you to generate excellent returns in what will be one of the most profitable sectors of the energy industry. Click here for your Free report. Perhaps the biggest foreign-policy story of the past decade, thoroughly overlooked by the American media after 9/11 and its subsequent monomaniacal focus on terrorism, security and the wars in Iraq and Afghanistan, is the fact that Latin America has essentially moved away from Washington's influence. This quiet revolution from below, in rejecting the Monroe Doctrine, first enunciated in 1823 whereby the U.S. essentially barred European powers from influence in Latin America, has essentially for nearly 200 years served as an ideological platform for countless U.S. interventions south of the border but has yet to register on the radar the politicians in Washington. From Ecuador to Paraguay, Venezuela to Brazil, governments increasingly composed of representatives of the indigenous people, are more and more rebuffing Washington's advice as they seek to determine their countries’ futures without undue interference from their giant North American neighbor. Nowhere is this more evident than in Brazil, which after suffering decades of corrupt government and intermittent military dictatorship in 2003 elected Luiz Inácio Lula da Silva as president, who’s adroit and progressive policies until he relinquished the proposed last year have laid the foundations for the dramatic rise of Brazil's economy. President Lula focused on social equality and improving the lot of the nation's poor, and that and other policies such as reining in the rampant inflation that ravaged the country when he took office, saw him leave the presidency with an approval rating of 80 percent, a political achievement unmatched in any other country. Lula put Brazil’s economic interests first and foremost, and spoke his mind prior to a G20 summit in March 2009, when in Brasilia, with British Prime Minister Gordon Brown squirming uncomfortably beside him, he addressed the issue of the global recession which had begun the previous year by telling reporters, "This crisis was caused by no black man or woman or by no indigenous person or by no poor person. This crisis was fostered and boosted by irrational behavior of some people that are white, blue-eyed. Before the crisis they looked like they knew everything about economics, and they have demonstrated they know nothing about economics." Challenged about his claims, Lula responded: "I only record what I see in the press. I am not acquainted with a single black banker." Indirectly addressing the West’s and in particular the United States' obsession with security against terrorism in the wake of the 9/11 attacks, Lula continued, "We do not have the right to allow this crisis to continue for long. We are determined to make sure the world financial system is vigorously regulated. You go to a shopping mall and you are filmed. You go to the airport and you are watched. I can't imagine that only the financial system has no surveillance at all." Last July while visiting Zambia Lula noted, “We had a debt of $30 billion to the International Monetary Fund but when I took office, we repaid the IMF and we don’t owe anymore to the IMF. On the contrary, the IMF owes us $14 billion. We have $250 billion in our currency reserves.” Now the crown jewel in Brazil's economy, the government-managed Petrobras energy company is to build on Lula's sound fiscal foundation and stated that it intends to double its output within the next four years. Furthermore, echoing Lula's reluctance to rely on foreign financial funding, Petrobras said that its plan to more than double oil output will boost the company's cash flow and eliminate the need to tap debt markets in less than a decade, as profits from oil sales will be enough to cover both operating and debt costs, according to Petrobras Chief Financial Officer Almir Barbassa. Earlier this week Petrobras announced its plans to invest $224.7 billion in increasing production through 2015, more than any other major oil producer in the world, as it develops some of the world’s largest discoveries in three decades outside of the Caspian basin. Barbassa said modestly, “Cash flow will be enough to pay debt amortizations and the investments we will have. Few companies in the world can say this.” A government focused both on social reform and prudent economic policy while the country's largest company purchases a policy of minimizing foreign borrowing through a pay-as-you-go policy – what radical concepts. It would seem that the future of Petrobras is quite bright, and if Washington bothers to listen to its rising southern economic superpower hemispheric neighbor it might even learn a few things about fiscal accountability, if the Republicans in Congress can be momentarily dissuaded from their efforts to drive America’s international credit ratings over a cliff. By. John C.K. Daly of OilPrice Next >

More Oil and Misinformation: Crimes of the Century

I wanted to post this as a comment on the article below but it was too long...



Robert,



This is an interesting article and I admit I have been involved in oil company bashing myself on many of the accounts that you mention above.



However, what I feel you have left out are the automobile energy efficiency patents and designs that have been bought up and shut down over the past 60 years (see "GasHole") that could help us reduce our dependency on foreign oil significantly if we could just alter existing autos and produce new autos with 100+ mpg. Face it, there have been no real improvements on fuel efficiency since that late 1970's and its NOT for a lack of innovation.



Additionally what you leave out is the impact of oil production and refining on the health of people living near those facilities. (See "Fuel"). The birth defects and cancer rates near those areas are exponentially higher around the world. This MUST be related to our massive healthcare issues and costs.



You also fail to leave out the concept of peak oil and our government's incessant war for energy as explicitly defined in the Carter Doctrine. Countless lives have been lost to protect our oil interests around the world, particularly in the middle east, which has attributed to their anger against us. It has also lead to a military and defense spending that will ultimately lead to the demise of our Republic.



Perhaps the stockholders of those oil companies are not fully aware of the crimes their investments have created. Indeed they have probably chosen to turn a blind eye because of the benefits to their lifestyle and 401ks.



In summary all of the items you left out have a health, quality of life, and tax impact on our nation that is beyond comprehension.



That my friend is why we are angry, not just at oil companies, but at the members of our government for being accomplices in one of the greatest crimes in history.

Amplify’d from oilprice.com

Oil and Misinformation: The Truth about Oil Companies

Written by Robert Rapier

Tuesday, 02 August 2011 13:03

In my travels around the globe, I have never been to another country that regards their oil companies as we do here in the U.S. I have actually been in countries where people view their domestic oil companies as a source of national pride. Here in the U.S., the average person on the street views our oil companies as vile, greedy parasites on taxpayers that should be tarred, feathered, and run right out of the country. While this belief is commonly held among Democrats, even staunch Conservatives like Bill O’Reilly have gone on anti-oil company rants, while offering suggestions like “American oil companies must supply the federal government with a written explanation every time they raise the price of gas and oil.”

Why It Matters to Me

But why should I care? Well, I care because ignorance is the basis of bad energy policy decisions. Bad energy policy decisions are likely to lead to higher levels of oil imports, which will hasten the demise of the U.S. as a superpower. (Lots of bad decisions are contributing to our slide toward mediocrity, but record trade deficits brought on by record flows of money to oil exporting nations are a contributor).

But I also care because I used to work for an oil company, and therefore I take misinformation directed at the oil industry somewhat personally. As I learned how oil companies really worked, I felt compelled to explain to people why their perceptions were wrong. It pained me to see so many hard-working people — people who provide the energy that most people use every day to move around the world — treated with such revulsion. As someone once said to me “It isn’t the oil company employees that we are angry with. It is the oil companies themselves.” The problem with that explanation is that the oil companies are the employees that work there and the shareholders that own stock (which is probably you if you have an interest in a pension fund – see Who Owns Big Oil).

Don’t Marginalize if You Have No Replacement

Let me be clear that I want to see the world reduce dependency on oil. In fact developing replacements for oil is the basis of my job. But my fear is that before that day comes, we will simply marginalize our domestic oil companies, and while we are still heavily dependent on oil, that dependence is shifted to an even greater degree to foreign oil companies like Saudi Aramco. So I think it is a bad idea to put policies in place that will give foreign oil companies an advantage over domestic oil companies — and many of the proposals that are frequently floated would do just that.

HuffPo: A Fountain of Misinformation

Last week earnings were announced for several major oil companies. Any time oil prices are high, earnings for integrated oil companies are likely to be high. And that is going to lead to consumer anger, which is often fueled by a steady dose of misinformation. Huffington Post just published a story on ExxonMobil’s earnings, and the comments following the story demonstrate a stunning level of ignorance about oil companies. And it wasn’t just a few people; the article had 3,500 comments in just a couple of days and the majority were happily spreading the sort of misinformation I highlight below:

Big Oil Companies Post Huge Profits On High Gas Prices

Even the title is somewhat misleading. High oil prices are driving the bulk of the profits; pure refiners like Valero also saw earnings increase, but not like those of oil producers. Some of the article is correct, some of it is most certainly incorrect, and much of it is misleading. It is definitely intended to be inflammatory. Taken as a whole, the article and the comments following the article provide ample evidence for my recent claim that Democrats are really misinformed about energy (the readers and writers of Huffington Post are overwhelmingly Democrats).

What is correct is that oil companies are making big profits, and those profits are coming out of consumers’ pockets. But numerous issues that the article raised around those points are wrong, and it is that sort of misinformation that helps keep the public so angry over this issue. So what I would like to do here is take 10 points from the article itself or the comments following the article and either provide accurate information, or at least context for the claims.

1. Taxes

The article implies that oil companies don’t pay a fair share in taxes, quoting Congressman Ed Markey as saying “it’s time for the oil companies to do their part and contribute to solving our debt crisis.” But this issue really took on a life of its own in the comments, where numerous people claimed that oil companies don’t pay any taxes to the U.S. government. For example “They pay taxes to foreign nations and they pay state and local taxes…to the Federal coffers…¬not a dime“ and “Exon Mobil did not pay any nit-wit.”

I suppose I would be pretty angry too if I thought that not only are we subsidizing oil companies with tax dollars, and not only are they reaping profits at our expense — but they don’t pay any federal income taxes while the country struggles with a budget crisis. Yes, that would be shocking and cause for anger if it was true. But it isn’t.

This claim seems to have originated with a 2010 article in Forbes called Big Oil’s Tax Bill. In that article, the writer stated that in 2009, ExxonMobil (XOM) paid no U.S. income taxes. In a follow-up article, the writer had to back-peddle as the context became clear:

“My mistake was in thinking that these figures somehow reflected actual tax benefits and liabilities. So what we should have written was that ExxonMobil “recorded” no U.S. income taxes for 2009 instead of “paid.” All you re-bloggers out there, please note the clarification. Mea culpa.”

For the “re-bloggers”, this didn’t matter much, as the original claim had a life of its own and soon became conventional wisdom: ExxonMobil doesn’t pay federal income taxes. Senator Bernie Sanders repeated this claim on the Senate floor: “Last year, ExxonMobil made $19 billion in profit. Guess what. They paid zero in taxes. They got a $156 million refund from the IRS.” (Politifacts investigated and said Senator Sanders was misleading “at best” and rated the claim false).

It is simple enough to address this claim. I merely linked to ExxonMobil’s SEC filings that show the breakdown of the taxes they paid in 2008, 2009, and 2010. Those SEC filings give an interesting picture of ExxonMobil’s operations. First, they show that ExxonMobil’s global income tax bill is very high: $36.5 billion in 2008, $25.9 billion in 2009, and $28.5 billion in 2010. Their foreign tax bill is much higher than their U.S. tax bill, but they do the majority of their operations outside the U.S. and are taxed on their earnings wherever they earned the money.

But then it does show their 2009 U.S. federal tax obligation to be negative $156 million. Their 2008 federal obligation was $3.4 billion and their 2010 federal obligation was $1.3 billion. ExxonMobil has stated that the reason for the 2009 obligation is that they make estimated payments on taxes due, and they had overpaid for the previous year (or years). Therefore, it wasn’t that they didn’t have a tax obligation, it was that it had already been (over)paid. It is similar to why people get tax refunds. The government isn’t giving you money, you overpaid your tax bill during the year. And if you made a lot of money in 2008 and then a lot less in 2009 (XOM’s 2009 profit was less than half their 2008 profit), you could find that the refund from your 2008 taxes was greater than your 2009 obligation. That doesn’t mean you didn’t pay taxes. It is just a reflection of when you paid them.

A related claim is that ExxonMobil only pays a few percent of their income in taxes. Some who make this claim take their worldwide earnings and only apply their U.S. tax obligation to those earnings. That is disingenuous because it doesn’t capture the fact that the U.S. is a minor part of their global operations (XOM recently put U.S. earnings at under 6% of their total earnings), and that they earn most of their money and pay most of their taxes in foreign countries. Thus presenting U.S. taxes against overall earnings paints a false picture.

One article floating around from the Center for American Progress quotes a Center for Tax Justice report that claims XOM only paid 0.4% in federal income taxes and their U.S. tax bill the past two years was only $39 million. A look at their SEC filings shows that this is blatantly false. With fictional reporting like this, it is no wonder people feel the way they do about oil companies. But people with an agenda aren’t interested in the truth if it conflicts with their agenda.

2. Subsidies

The article claims that oil companies receive “$4 billion to $8 billion a year in deficit-increasing tax subsidies.” People got really carried away with this in the comments. Not only are the oil companies not paying any taxes, but they are being supported entirely by the subsidies taxpayers are providing them. A typical comment following the essay: “Folks, listen up! This is our tax money that we pay that is subsidiziing these greedy no good SOB’s! They have the gall to be charging close to $4 a gallon!”

Several problems with this one. First, people’s responses indicated that they seem to believe these “subsidies” are cash payments to oil companies. In fact, as I documented previously, the subsidies are tax deductions that in most cases are identical to the tax deductions that other companies — including companies with far higher profit margins — receive. In the case of oil companies, they would amount to about 1.8 cents a gallon — a drop in the bucket relative to both oil company profits and the taxes they paid.

The question nobody seemed to be interested in was “What are these subsidies, and what is their intended purpose?” If you learn that the subsidies are mostly standard tax deductions or that their purpose is to keep manufacturing in the U.S. (and thus increase tax revenues), the narrative is much less interesting.

3. Oil companies control oil price

For example: “There is no way that anyone can deny that the BIG 5 oil companies collude to drive gas prices and profits higher.”

It seems to be hard for people to understand that the profits of oil companies in the U.S. are not a result of them raising oil and gas prices. Their profits went up because oil and gas prices went up. They have cause and effect mixed up. It’s the same reason corn farmers make more money when corn prices go up. The truth is that ExxonMobil — with 3% of the world’s oil production capacity — can do very little to impact global oil and gas prices.

But aren’t the oil companies profitable enough that they could give everyone a break on their gasoline prices? There are two flaws in that line of thinking. First is that even though there is speculation in the market, oil prices are a reflection of supply and demand. The growth in the economies of India and China ensure that high oil prices are here to stay, even if there are some short-term corrections. So high prices are a signal to consumers to use less and a signal to producers to produce more. Low prices and high demand are a recipe for shortages caused by over-consumption.

But to illustrate the other problem with that line of thinking, consider this analogy. You buy a $100,000 home in a neighborhood and then the price of the average home quadruples over the next 10 years. You decide that you aren’t greedy, and you are satisfied with selling your home for $200,000, even though comparable homes are selling for $400,000. This would be like ExxonMobil deciding to sell gasoline for $1 a gallon below their competitors. What happens in this case? In cases like this, some other person is going to snap that home up for $200,000 and resell it for $400,000, capturing the profit that would have been yours. Prices aren’t set in a vacuum. Most people don’t just decide to sell a $100,000 home for $400,000 or $50,000, they sell it based on what the market is paying.

The same is true for oil prices. Even though they benefit from high prices, there isn’t too much an ExxonMobil can do to influence the global price of oil, and that has the biggest influence on the price you pay at the pump. OPEC on the other hand is a different story; they could drive oil to $200 overnight by withholding enough from the market. But no U.S. oil company controls enough oil to have much influence.

4. Apple versus the oil companies

There were a number of comments comparing Apple to the various oil companies. Apple indisputably has much higher profit margins than the oil companies, but people admire them because as one person said “they produce something useful.” Of course Apple’s products are largely made from oil, but that’s another story (a 3G phone requires 1.7 gallons of oil to produce and distribute). Here are some of the comments on Apple: One person claimed that Apple has a higher effective tax rate than do oil companies: “The oil companies are given tax breaks at virtually every stage of production¬, paying an affective tax rate of 9%. Apple effective tax rate 24.4%.”

This person’s mistake was in comparing one type of tax — the tax on capital equipment — to an overall tax rate. Looking back to ExxonMobil’s SEC filings, their effective tax rates in 2008, 2009, and 2010 were 46%, 45%, and 47% — almost double that of Apple. The reason for this is that they simply have to pay taxes that Apple does not have to pay, and in some cases they don’t receive the same tax deductions that Apple does receive (see Point 6 below).

5. Apple employs more people

Another person claimed that Apple employs more people than the oil companies: “Apple employs a lot more people than any oil company. The insane thing about oil companies is how much money they make relative to the comparativ¬ely miniscule amount of labor force required to operate.”

It is amazing how often people just make things up. Apple employs “46,600 full time employees and 2,800 temporary full time employees worldwide.” Exxonmobil employs “over 82,000 people worldwide.” In 2010 Apple earned $14 billion on sales of $65 billion (21.5% profit margin by that metric, and profits of $300,000 per full time employee). In 2010 ExxonMobil earned $30.5 billion on sales of $370 billion (8.2% profit margin, and profits of $372,000 per full time employee).

6. Apple doesn’t receive subsidies

Several people claimed that the difference between Apple or Google and XOM is that the former don’t receive subsidies: “Apple isn’t subsidized with tax money, that is the difference.”

In fact, Apple receives a 9% tax deduction from Section 199 of the tax code. Oil companies are limited to a 6% deduction from Section 199, which has been called the single biggest oil company subsidy. So Apple not only receives some of the exact same “subsidies” (although I don’t really consider a tax deduction a subsidy), they get a bigger deduction despite having much higher profit margins (which again is reflected in the relative effective tax rates).

7. Oil companies aren’t investing in their business

The article claimed: “Rather than invest their profits in such things as product development, new facilities, hot talent or research — things that could create jobs, improve consumer offerings and accelerate alternative energy production — three of the five big oil companies are spending large amounts of that money buying back shares of their own stock.”

ExxonMobil invests $25-$30 billion a year back into their business. This from a company that earned $30 billion in 2010. Other oil companies have similar investment profiles. The oil business is very expensive, and those big profits are made possible by big investments in capital, R&D, and even into renewable energy. You may have read of ExxonMobil’s $600 million algae bet. (That’s really not quite accurate to call it $600 million, but it is one example of many in which oil companies are investing in renewables). So Dan Froomkin — the author of the article — is either grossly misinformed or simply spreading half-truths. (It is true that they are buying back stock, which is why it is a half truth instead of a full lie).

8. Oil companies spent over $1 billion in lobbying

The article claims that “the oil and gas industry is enormously powerful on Capitol Hill, spending over $1 billion in lobbying since 1998.”

Per the linked source in the article, the oil company did spend $1.15 billion in lobbying over the span of 14 years. So a trillion dollar plus industry spent an average of $82 million a year on lobbying. A couple of things. First, all you have to do is read the article and the comments to see that oil companies will have to do at least some lobbying to combat the sort of misinformation people like Froomkin spread. But of course they lobby for things in their own self-interest, just like other companies. At the same linked source, you find that the pharmaceutical industry spent twice as much money as the oil industry on lobbying, and the insurance industry, electric utilities, business associations, and computer and Internet industry all spent more money on lobbying than did the oil industry.

During various ethanol debates, I always maintained that the agriculture lobby is bigger than the oil lobby. But for some reason, the link does not list the ag lobby in their Top Industries list for lobbying. But if you look at their detailed statistics, agriculture spent more money over the past 14 years than did the oil industry: $1.4 billion for agriculture versus $1.15 billion for oil companies. That would rank agriculture #4 on the list over the past 14 years. In 2010, the agriculture industry spent $121 million, had 473 clients, and employed 1,151 lobbyists. By contrast, the oil industry spent $145 million (their spending was higher than agriculture’s in 2010, but was lower in most years), had 200 clients, and employed 798 lobbyists. So, by most measures (historical spending, number of lobbyists, number of clients) the ag lobby is bigger than the oil lobby.

So the claim is true, but misleading: Oil companies did spend over $1 billion in lobbying over that 14-year time frame. But without context the claim is grossly misleading by not showing that oil companies were pretty average relative to other industries with respect to their lobbying efforts. This, despite being larger than many of these other industries, but more importantly despite facing much more open hostility from one of the political parties that would seemingly be happy to legislate them out of existence.

9. Oil companies should be nationalized

This one was pretty popular in the comments following the article. But as Ed Markey was quoted in the article “America is swimming in debt while oil companies are swimming in profits.” Now that’s a strong endorsement for the government to run the oil companies, isn’t it? Our government has shown themselves to be such good stewards of managing our tax dollars. Perhaps after a few years of government administration, the oil companies will also be swimming in debt and teetering on default and everyone will be happy.

10. Renewable energy creates more jobs

Actually, this one is true, but most people likely never stop to consider why that is. With fossil fuels, nature already grew the biomass, harvested it, and used the temperature and pressure of the earth to chemically convert it into an energy dense form of energy like oil. Humans are left to collect that energy dense material and convert it into usable energy.

With renewable energy, humans must do the planting, growing, harvesting, and then ultimately process it into usable energy. Because humans are engaged in more steps of the process than in fossil fuels, it necessarily takes more people to produce one energy unit of renewable energy against an equivalent unit of fossil fuels. This is a big reason why renewable energy has long been more expensive than fossil energy. It probably won’t be that way forever, and it isn’t true in every single case. As fossil fuels become ever harder to reach, I believe that more renewables will compete on a level playing field. And maybe some day when oil is much more difficult to extract it will take just as many people to produce a barrel of oil as it does to produce a barrel of renewable fuel.

Conclusions

The biggest takeaway from all of this is that people are grossly, horribly misinformed about oil companies. But another big lesson here is that they don’t seem to care. Often, when I would engage someone to correct them on one point or another, they would simply ignore the correction and toss out another bit of misinformation. People just weren’t really interested in getting to the truth of the matter. They “know” oil companies are bad, and they won’t hear anything to the contrary.

Most of these people likely can’t imagine what their life would be like without the oil that is produced, refined, and turned into fuel, plastics, and medicines. In the U.S, the idea that oil companies are parasites with few redeeming qualities is so embedded in many people that it would likely take a serious oil shortage — and a realization of just what life will be like without ample supplies of oil — before attitudes change. This is doubly-true since one of our major political parties has long considered the demonization of the oil companies to be a great way to win votes. But they should be careful what they wish for, because life won’t be as pleasant as they think if they drive our domestic oil companies out of business or out of the country. Read more at oilprice.com

 

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