Turkey Dinner Jude Wanniski November 24, 1999

OIL: There is 40 years' supply of crude oil in known reserves on earth, even taking into account a steady increase in consumption. The rise in the price of oil to $27 a barrel is a separate issue, involving the ability of producers to get the oil out of the ground. In the two year period when the oil price had declined to roughly $9, virtually all investment in new production halted. The reason for the decline, remember, was the Federal Reserve's monetary deflation, which starved the economy of liquidity during the expansion that followed from the 1997 supply-side tax cuts. In the first phase of a monetary deflation, producers of commodities are whacked. Then it is the turn of the producers of intellectual goods who pay the tab. When oil was sinking in this process, the Power Elites did everything they could to keep Iraqi oil off the market, constructing elaborate and ridiculous arguments about Saddam Hussein and his hidden weapons of mass destruction. Because the cost in human lives and suffering was so high inside Iraq, the Clinton administration had to permit enough oil to come out of Iraq to allow a minimum of calories to get into the 20 million Iraqis. As the oil price climbed, the Power Elites decided to allow more oil to come out of Iraq under the U.N. oil-for-food program. The program is so thoroughly rigged that the U.N., which controls the oil revenues, kept an increasing share for its expenses . That's why Iraq this week decided to use its leverage to shut down all exports, upon fulfillment of existing contracts, in order to extract a better deal from the West's oilmasters. Bear this in mind as you tank up on the way to grandma's tomorrow. Note also the fact that the Fed has so undermined confidence in its ability to manage the unit of account for the world that there remains insufficient investment in new productive capacity even at the higher price. If there is global recession in 2000, the oil price will head south in real terms. That is, there may be a contraction and a monetary inflation at the same time. Oil and gold are likely to get back into their traditional 14/15-to-1 ratio.

Y2K Report: We thought we could deliver our next Y2K report by today, but decided to collect a bit more elusive information and get it to you on Monday, when you are well-fed, rested and braced for our assessment. The effort was to take the most pessimistic Y2K analysis we could find, that at www.garynorth.com, and take it apart piece by piece, pros and cons. By way of coming attractions, we do find his overall assessment persuasive, but only to a degree. He expects a global Depression that will last a decade. We believe there will be more serious problems than the markets now are expecting -- given the soothing assurances of the Clinton administration and the Fed -- but that most of the world will be back on track by the end of next year. If you would like to amuse yourself after the pumpkin pie, try www.russkelly.com. There you will find his tally and comments of 20 Y2K "experts," whose most recent forecasts range from 0.9 to 10 on the catastrophe scale, with Gary North of course at the high point, where he has been since Kelly began his tallies.

 Contingency Planning: We have no idea what secret contingency planning there is inside the government for Y2K, but assume there must be a plan for gasoline rationing, given concerns for seaport compliance and sketchy compliance at world oil refineries. Our pure guess would be long lines to ration rather than market pricing. The administration would find this more equitable to the lower-income classes, where there is more time than money. The Fed is of course doing everything it can to assure the banking community that it will be prepared to discount everything but the kitchen sink. It is also involved in a series of 60-day repurchase agreements (REPOs), that are parking several billions of dollars in banks, in excess reserves that will be reeled in next February. We hope there has been planning between Alan Greenspan and his counterparts in Euroland and Tokyo to fix currency exchange rates, as per Nobel Laureate Robert Mundell's recommendation. It would be helpful if this were announced to the markets in advance, to reduce the risk of currency and commodity volatility, but it seems doubtful Greenspan wants to show his hand on this issue.

Presidential 2000: The biggest surprises of the week were George W. Bush's exemplary performance on Meet the Press last Sunday and Pat Buchanan's Monday foreign-policy speech at CATO. Bush read his first major foreign policy speech a week ago, and while it wasn't great, it hit all the safe and centrist notes dictated by the Establishment. He opposes protectionism and isolationism. He was genuinely impressive in his Tim Russert interview, which took the full hour of Meet the Press, working without notes and sounding confident and knowledgeable and even spontaneous now and then. It is, though, generally the case that a guest like Bush would get a list in advance of the topics to be covered, and assurances there would be no curve balls. Buchanan's CATO speech was a most pleasant surprise. As columnist Bob Novak noted: "It was, I believe, from my standpoint, the most thoughtful foreign policy speech I have heard this year. It isn't isolationist. It isn't protectionist. It's saying, do we have any business meddling all over the world?" Buchanan called for serious engagement with Iran and Iraq, a major effort to rebuild our relationship with Moscow, political sensitivity to the Islamic world, and a wholly new approach to foreign policy with which I could find little to disagree. On this track, Buchanan clearly will draw more interest for his Reform Party candidacy and throw a scare into the major parties. There still is too much bluster from him on China, but at least he has limited his threats to economic policy, whereas the other GOP contenders are getting too close to military commitments to Taiwan for my comfort.

NY Senate Race: The Reform Party may also throw a curve at the two major parties in the New York Senate race shaping up between New York Mayor Rudy Giuliani and First Lady Hillary Clinton. Called the "Independence Party" in New York, it now has the third line on the ballot, ahead of both the Conservative and Liberal lines. We hear both Giuliani's people and Hillary's are inquiring as to how they might get the Independence endorsement. Imagine Buchanan and Hillary on the same ticket and you see how wacky 2000 may get. Of course, there is always the chance that Lenora Fulani, who is co-chair of the Buchanan campaign and the founder of the Independence Party, will file for the Senate seat. A Buchanan/Fulani ticket would complicate the lives of both Rudy and Hillary, but obviously would draw a huge piece of the black vote away from the First Lady and at first glance help Rudy win by a landslide. On second glance, it might help Buchanan win New York in a three-way with Gore and Bush. My head spins. Pass the candied yams. Farrakhan: The Nation of Islam leader, convalescing for almost a year with an infection related to his prostate cancer, not only is back at work in Chicago. On November 9 he met with a delegation of eight ultra-orthodox rabbis from New York, who came to pay their respects to him. This week's Final Call, the NOI newspaper, tells of a June meeting in Chicago with the same delegation, which met with Minister Louis Farrakhan's chief of staff, Leonard Muhammad, asking the NOI's help with Iran, which has charged several Iranian Jews with various degrees of treason. According to the story in the paper, the delegation apologized for the treatment of Farrakhan by the "Zionist" Jews, as their sect does not recognize Israel. They gave him a plaque, wishing him "long life and healthy years to continue preaching the truth and doing good deeds." This admittedly is a fringe sect, comparable to the Amish in their fundamentalism and viewed as kooks by secularized Jews. The fact that Farrakhan not only could break bread with them, but also advise them that he does support the state of Israel (as well as a Palestinian state), makes him more Catholic than the Pope? Howzzat? I think I will have another glass of Manischewitz and take a nap. Happy Thanksgiving.